Enveric Biosciences, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to ensure that the information we are required to disclose in reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified under the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer (our principal executive) and Chief Financial Officer (our principal financial officer and principal accounting officer) carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2023. Based on this evaluation, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in paragraph (e) of Rules 13a-15 and 15d-15 under the Exchange Act) were not effective as of December 31, 2023. Limitations on Internal Control over Financial Reporting An internal control system over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. 61 Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process used to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles in the United States, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer and principal accounting officer), we performed an assessment of the Company’s significant processes and key controls. Based on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2023 due to the material weaknesses described below. A material weakness in internal control over financial reporting is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. We determined that our internal control over financial reporting had the following material weaknesses: ● We were unable to document, formalize, implement and revise where necessary controls, policies and procedure documentation to evidence a system of controls, including testing of such controls that is consistent with our current personnel and available resources; ● We failed to document, maintain and test effective control activities over our control environment, risk assessment, information technology and monitoring components; ● We had insufficient segregation of duties, oversight of work performed and lack of compensating controls in our finance and accounting functions, including, without limitation, the processing, review and authorization of all routine and non-routine transactions, due to limited personnel and resources. The Company is evaluating these weaknesses to determine the appropriate remedy. Because disclosure controls and procedures include those components of internal control over financial reporting that provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, management also determined that its disclosure controls and procedures were not effective as a result of the foregoing material weaknesses in its internal control over financial reporting. Changes in Internal Control over Financial Reporting As of December 31, 2023, the Company is in process of remediating its material weaknesses and designing an effective internal control environment, however it has not yet remediated its material weaknesses. Remediation efforts to address material weaknesses in internal controls ● We engaged third party subject matter experts to assist in the design and documentation of an internal control environment meeting those requirements and criteria established in the COSO 2013 Internal Control Integrated Framework; ● We engaged information technology experts who designed and implemented a secure, cloud based, server and IT environment with controlled access, monitoring, help desk and a user training protocol; ● We installed and implemented third party software that provides improved control, approvals and segregation of duties over the purchase to pay operation cycle; ● We engaged third party subject matter experts who are providing independent supervision of accounting staff, transaction processing, reconciliations and financial statement preparation, resulting in improved segregation of duties; 62 ● We engaged third party subject matter experts who are assisting in the financial reporting function, with such activities, including, without limitation, preparation, review and reconciliation of financial reports, research of technical accounting issues/transactions, performing various checklists to ensure compliance with GAAP and SEC requirements, with all such activities resulting in improved segregation of duties. Item 9B. Other Information In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right requiring Akos to force redemption of all of the Akos Series A Preferred Stock for $1,000 per share, plus accrued but unpaid dividends of approximately $50,000 for a total of approximately $1,052,057. The Company had 20 days following the receipt of the Put Exercise Notice to make the payment and made payment on May 19, 2023. The Company, Akos, and the Akos Investor terminated the Akos Purchase Agreement in connection with the planned Spin-Off and that certain registration rights agreement in connection with the Akos Private Placement in May 2023. In May 2023, the Company entered into a cost reduction plan, including a reduction in force of approximately 35% of its full-time employees to streamline its operations and conserve cash resources. Additionally, contracts with seven consultants that were focused on the Akos cannabinoid spin-out will be terminated. The Company recognized severance charges of $874,273 through December 31, 2023. The plan included a focus on progressing the Company’s existing non-cannabinoid pipeline while reducing the rate of spend and managing cash flow. As of December 31, 2023, the Company has completed the reduction in force, with such severance expenses recorded in salaries and wages. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 63 PART III Item 10. Directors, Executive Officers and Corporate Governance We incorporate by reference the information responsive to this Item under the captions “Election of Directors,” “Corporate Governance – Executive Officers,” “Corporate Governance – Family Relationships,” “Related Person Transactions and Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Code of Conduct and Ethics,” “Corporate Governance – Committees of the Board of Directors – Audit Committee,” “Corporate Governance – Insider Trading Policy,” “Stockholder Proposals and Nominations for Director” appearing in our definitive Proxy Statement on Schedule 14A for our 2024 Annual Meeting of Stockholders (“Proxy Statement”), a copy of which will be filed no later than 120 days after December 31, 2023. Item 11. Executive Compensation We incorporate by reference the information responsive to this Item under the captions “Executive Officer and Director Compensation” and “Corporate Governance – Committees of the Board of Directors – Compensation Committee” appearing in our Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters We incorporate by reference the information responsive to this Item under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Executive Officer and Director Compensation – Equity Compensation Plan Information” appearing in our Proxy Statement Item 13. Certain Relationships and Related Transactions and Director Independence We incorporate by reference the information responsive to this Item under the captions “Related Person Transactions and Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance – Director Independence” appearing in our Proxy Statement. Item 14. Principal Accountant Fees and Services We incorporate by reference the information responsive to this Item under the caption “Principal Accountant Fees and Services” appearing in our Proxy Statement. 64 PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements: Reports of Independent Registered Accounting Firm (PCAOB Firm ID: Marcum LLP # 688 ) F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Operations and Comprehensive Loss F-3 Consolidated Statements of Changes in Mezzanine Equity and Shareholders’ Equity F-4 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 (2) Financial Statement Schedules: None. Financial statement schedules have not been included because they are not applicable, or the information is included in the consolidated financial statements or notes thereto. (3) Exhibits: See “Index to Exhibits” for a description of our exhibits. Item 16. Form 10–K Summary Not applicable. INDEX TO EXHIBITS Exhibit No. Description 2.1 Share Purchase Agreement, dated January 10, 2020, by and between AMERI Holdings, Inc. and Ameri100, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 13, 2020) 2.2 Tender Offer Support Agreement and Termination of Amalgamation Agreement, dated August 12, 2020, by and among AMERI Holdings, Inc., Jay Pharma Merger Sub, Inc., Jay Pharma Inc., 1236567 B.C. Unlimited Liability Company and Barry Kostiner, as the Ameri representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on August 12, 2020) 2.3 Amendment No. 1 To Tender Offer Support Agreement and Termination of Amalgamation Agreement, dated December 18, 2020, by and among Ameri, Jay Pharma Merger Sub, Inc., Jay Pharma Inc., 1236567 B.C. Unlimited Liability Company and Barry Kostiner, as the Ameri representative (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 18, 2020) 2.4 Amalgamation Agreement, dated May 24, 2021, by and among Enveric Biosciences, Inc., 1306432 B.C. LTD., 1306436 B.C. LTD., and MagicMed Industries, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 24, 2021) 3.1 Certificate of Amendment to Amended and Restated Certificate of Incorporation of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 3.2 Certificate of Designations of Series B Preferred Stock of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 3.3 Amended and Restated Bylaws of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 3.4 Amendment to the Amended and Restated Bylaws of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on November 18, 2021) 3.5 Certificate of Designation of the Series C Preferred Stock of the Company, dated May 4, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on May 4, 2022, File No. 000-26460) 3.6 Certificate of Amendment of Certificate of Designation of the Series C Preferred Stock of the Company, dated May 17, 2022 (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 8-A/A, filed with the Securities and Exchange Commission on May 17, 2022, File No. 000 26460) 65 3.7 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Enveric Biosciences, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 14, 2022) 4.1 Description of Securities (incorporated by reference to Exhibit 4.1 of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023) 4.2 Form of Pre-Funded Warrant (issued in connection with January 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021) 4.3 Form of Warrant (issued in connection with January 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021) 4.4 Form of Warrant (issued in connection with February 2021 Registered Direct Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021) 4.5 Form of Series B Warrant (incorporated by reference to Exhibit 4.5 to the Company’s Annual Report on Form 10-K filed with the Commission on April 1, 2021) 4.6 Form of MagicMed Warrant Certificate (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021) 4.7 Form of Common Stock Purchase Warrant (in connection with February 2022 Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 15, 2022) 4.8 Form of RD Pre-Funded Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 4.9 Form of PIPE Pre-Funded Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 4.10 Form of RD Preferred Investment Option (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 4.11 Form of PIPE Preferred Investment Option (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 4.12 Form of Wainwright Warrant (in connection with July 2022 Offering) (incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 4.13 Form of Inducement Warrant (in connection with December 2023 Offering) (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 29, 2023) 10.1 Employment Agreement between Kevin Coveney and the Company, effective March 13, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 28, 2023) 10.2 Form of Securities Purchase Agreement (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022) 10.3 Certificate of the Designations, Preferences and Rights of Akos Series A Convertible Preferred Stock (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022) 10.4 Form of Registration Rights Agreement (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022) 66 10.5 Form of Warrant (entered into in connection with the May 5, 2022 Private Placement) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on May 11, 2022) 10.6 Form of Warrant Amendment (in connection with the July 2022 Offerings) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 10.7 First Amendment to the Enveric Biosciences, Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 14, 2022) 10.8 Form of Warrant Amendment (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 10.9 Form of Securities Purchase Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 10.10 Form of Securities Purchase Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 10.11 Form of Registration Rights Agreement (in connection with July 2022 Offering) (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on July 26, 2022) 10.12 Employment Agreement, dated December 2, 2020, by and between the Company and Avani Kanubaddi (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 10.13 Enveric Biosciences, Inc. 2020 Long-Term Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 10.14 Form of RSU Award Agreement (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the Commission on January 6, 2021) 10.15 Form of Securities Purchase Agreement, dated January 11, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021) 10.16 Form of Registration Rights Agreement, dated January 11, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021) 10.17 Letter Agreement, dated January 11, 2021, by and between the Company and Alpha Capital Anstalt (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the Commission on January 12, 2021) 10.18 Form of Securities Purchase Agreement, dated February 9, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021) 10.19 Form of Registration Rights Agreement, dated February 9, 2021, by and among the Company and the purchasers thereto (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the Commission on February 11, 2021) 10.20 Exclusive License Agreement, between the Company and Diverse Biotech, Inc., dated March 5, 2021 (incorporated by reference to Exhibit 10.6 the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 17, 2021) 10.21 Form of Voting and Support Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex B-1 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021) 67 10.22 Form of Voting Agreement, dated as of May 24, 2021, by and among MagicMed Industries Inc. and certain shareholders of Enveric Biosciences, Inc. named therein (incorporated by reference to Annex B-2 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021) 10.23 Form of Lock-Up Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex C-1 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 6, 2021) 10.24 Form of Lock-Up/Leak-Out Agreement, dated as of May 24, 2021, by and among Enveric Biosciences, Inc. and certain shareholders of MagicMed Industries Inc. named therein (incorporated by reference to Annex C-2 to the Company’s Proxy Statement/Prospectus, filed with the Commission on August 3, 2021) 10.25 Employment Agreement between Joseph Tucker and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021) 10.26 Employment Agreement between Peter Facchini and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021) 10.27 Employment Agreement between Jillian Hagel and Enveric Biosciences, Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 24, 2021) 10.28 MagicMed Stock Option Plan, as amended September 10, 2021 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2021) 10.29 Form of Termination of Prior Agreements and Mutual Release (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on May 15, 2023)*** 10.30 Equity Distribution Agreement, dated September 1, 20123, by and among the Company and Canaccord Genuity, LLC (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the Commission on September 1, 2023) 10.31 Purchase Agreement, dated November 3, 2023, by and among the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the Commission on November 6, 2023) 10.32 Registration Rights Agreement, dated November 3, 2023, by and among the Company and Lincoln Park Capital Fund, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the Commission on November 6, 2023) 10.33 Form of Inducement Warrant, dated December 28, 2023, by and among the investors thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the Commission on December 29, 2023) 14 Code of Ethics* 19 Policy on Insider Trading* 21.1 Subsidiaries (incorporated by reference to Exhibit 21.1 of the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2023) 23.1 Consent of independent registered public accountant – Marcum LLP* 31.1 Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer* 31.2 Certification pursuant to Section 302 of the Sarbanes–Oxley Act of 2002 of Principal Financial and Accounting Officer* 32 Certification pursuant to Section 906 of the Sarbanes–Oxley Act of 2002 of Principal Executive Officer, Principal Financial and Accounting Officer** 97 Clawback Policy* 101.INS Inline XBRL Instance Document* 101.SCH Inline XBRL Taxonomy Extension Schema* 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document* 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document* 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) * Filed herewith. ** Furnished herewith. *** Certain confidential portions of this Exhibit were omitted by means of marking such portions with brackets (“[***]”) because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed. # Management contract or compensatory plan or arrangement. 68 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ENVERIC BIOSCIENCES, INC. March 25, 2024 By: /s/ Dr. Joseph Tucker Dr. Joseph Tucker Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. March 25, 2024 By: /s/ Dr. Joseph Tucker Dr. Joseph Tucker Chief Executive Officer (Principal Executive Officer) March 25, 2024 By: /s/ Kevin Coveney Kevin Coveney Chief Financial Officer (Principal Financial and Accounting Officer) March 25, 2024 By: /s/ Michael Webb Michael Webb Director March 25, 2024 By: /s/ George Kegler George Kegler Director March 25, 2024 By: /s/ Marcus Schabacker Marcus Schabacker Director March 25, 2024 By: /s/ Frank Pasqualone Frank Pasqualone Director 69 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Enveric Biosciences, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Enveric Biosciences, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, changes in mezzanine equity and shareholders’ equity and cash flows for the years ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph – Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit s . We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Contracted Research & Development Cost Recognition: Critical Audit Matter Description As discussed in Note 2 to the financial statements, the Company records costs for contracted research and development costs based upon estimates of costs incurred through the balance sheet date for services performed by contract research organizations, clinical study sites and other research and development related vendors. Auditing the recognition of costs associated with contracted research and development organizations is challenging due to the significant judgment required to determine the nature and level of services that have been received, including determining the progress to completion of specific tasks and activities conducted in relation to what has been invoiced and recorded. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included: ● Obtained an understanding of the design and implementation of internal controls for contracted research and development cost. ● Tested the completeness and accuracy of the underlying data used in the estimates including, but not limited to, the estimated costs per project milestone and duration. ● Assessed the reasonableness of the significant assumptions, corroborated the progress of the contracted research and development costs with the Company’s operations personnel and to information obtained by the Company directly from third parties, and to information in contracts or statements of work including costs for those activities and project duration. ● Examined subsequent invoices received from contracted research and development cost third parties. /s/ Marcum LLP We have served as the Company’s auditor since 2021. East Hanover, New Jersey March 25, 2024 F- 1 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, 2023 2022 ASSETS Current assets: Cash $ 2,287,977 $ 17,723,884 Prepaid expenses and other current assets 1,293,554 708,053 Total current assets 3,581,531 18,431,937 Other assets: Property and equipment, net 507,377 677,485 Right-of-use operating lease asset — 63,817 Intangible assets, net 210,932 379,686 Total other assets 718,309 1,120,988 Total assets $ 4,299,840 $ 19,552,925 LIABILITIES, MEZZANINE EQUITY, AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,218,783 $ 463,275 Accrued liabilities 1,075,643 1,705,655 Current portion of right-of-use operating lease obligation — 63,820 Investment option liability 23,608 851,008 Warrant liability 25,470 185,215 Derivative liability — 727,000 Total current liabilities 2,343,504 3,995,973 Commitments and contingencies (Note 10) - - Mezzanine equity Series C redeemable preferred stock, $ 0.01 par value, 100,000 shares authorized, and 0 shares issued and outstanding as of December 31, 2023 and 2022, respectively — — Redeemable non-controlling interest — 885,028 Total mezzanine equity — 885,028 Shareholders’ equity Preferred stock, $ 0.01 par value, 20,000,000 shares authorized; Series B preferred stock, $ 0.01 par value, 3,600,000 shares authorized, 0 shares issued and outstanding as of December 31, 2023 and 2022, respectively — — Common stock, $ 0.01 par value, 100,000,000 shares authorized, 2,739,315 and 2,078,271 shares issued and outstanding as of December 31, 2023 and 2022, respectively 27,392 20,782 Additional paid-in capital 100,815,851 94,395,662 Stock subscription receivable ( 1,817,640 ) — Accumulated deficit ( 96,499,518 ) ( 79,207,786 ) Accumulated other comprehensive loss ( 569,749 ) ( 536,734 ) Total shareholders’ equity 1,956,336 14,671,924 Total liabilities, mezzanine equity, and shareholders’ equity $ 4,299,840 $ 19,552,925 F- 2 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Years Ended December 31, 2023 2022 Operating expenses General and administrative $ 8,852,021 $ 11,605,761 Research and development 7,252,437 8,027,773 Impairment of intangible assets and goodwill — 7,453,662 Depreciation and amortization 343,982 327,910 Total operating expenses 16,448,440 27,415,106 Loss from operations ( 16,448,440 ) ( 27,415,106 ) Other (expense) income Inducement expense, net ( 1,848,235 ) — Change in fair value of warrant liabilities 94,396 4,315,236 Change in fair value of investment option liability 208,752 3,472,726 Change in fair value of derivative liability 727,000 ( 325,000 ) Interest income (expense), net 3,708 ( 5,249 ) Total other (expense) income ( 814,379 ) 7,457,713 Net loss before income taxes ( 17,262,819 ) ( 19,957,393 ) Income tax (expense) benefit ( 28,913 ) 1,486,060 Net loss ( 17,291,732 ) ( 18,471,333 ) Less preferred dividends attributable to non-controlling interest 19,041 33,014 Less deemed dividends attributable to accretion of embedded derivative at redemption value 147,988 295,976 Net loss attributable to shareholders ( 17,458,761 ) ( 18,800,323 ) Other comprehensive loss Foreign currency translation ( 33,015 ) ( 505,932 ) Comprehensive loss $ ( 17,491,776 ) $ ( 19,306,255 ) Net loss per share - basic and diluted $ ( 8.09 ) $ ( 13.00 ) Weighted average shares outstanding, basic and diluted 2,159,063 1,446,007 F- 3 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY Redeemable Non-controlling Interest Common Stock Shares Amount Total Mezzanine Equity Shares Amount Additional Paid-In Capital Subscription Receivable Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance at January 1, 2023 - 1,000 885,028 $ 885,028 2,078,271 $ 20,782 $ 94,395,662 $ — $ ( 79,207,786 ) $ ( 536,734 ) $ 14,671,924 Preferred dividends attributable to redeemable non-controlling interest — 19,041 19,041 — — ( 19,041 ) — — — ( 19,041 ) Accretion of embedded derivative to redemption value — 147,988 147,988 — — ( 147,988 ) — — — ( 147,988 ) Redemption of Series A preferred ( 1,000 ) ( 1,052,057 ) ( 1,052,057 ) — — — — — — — Stock-based compensation — — — — — 2,150,160 — — — 2,150,160 Issuance of common shares in exchange for RSU conversions — — — 103,641 1,036 ( 1,036 ) — — — — Issuance of common shares for deferred offering costs — — — 139,403 1,394 253,713 — — — 255,107 Issuance of Inducement Warrants, net of offering costs of $ 239,302 — — — — — 1,967,424 ( 280,500 ) — — 1,686,924 Induced conversion of warrants and preferred investment options — — — — — 683,997 — — — 683,997 Exercise of warrants and preferred investment options — — — 418,000 4,180 1,532,960 ( 1,537,140 ) — — — Foreign exchange translation loss — — — — — — — — ( 33,015 ) ( 33,015 ) Net loss - — — — — — — — ( 17,291,732 ) — ( 17,291,732 ) Balance at December 31, 2023 - — — $ — 2,739,315 $ 27,392 $ 100,815,851 $ ( 1,817,640 ) $ ( 96,499,518 ) $ ( 569,749 ) $ 1,956,336 F- 4 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND SHAREHOLDERS’ EQUITY Series C Redeemable Preferred Stock Redeemable Non-controlling Interest Common Stock Shares Amount Shares Amount Total Mezzanine Equity Shares Amount Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total Shareholders’ Equity Balance at January 1, 2022 — $ — — $ — $ — 651,921 $ 6,519 $ 83,066,656 $ ( 60,736,453 ) $ ( 30,802 ) $ 22,305,920 Balance — $ — — $ — $ — 651,921 $ 6,519 $ 83,066,656 $ ( 60,736,453 ) $ ( 30,802 ) $ 22,305,920 February 2022 registered direct offering, net of offering costs — — — — — 400,000 4,000 5,798,464 — — 5,802,464 Stock-based compensation — — — — — — — 2,620,671 — — 2,620,671 Conversion of RSUs into common shares — — — — — 899 9 ( 9 ) — — — Redeemable non-controlling interest, net of $ 402,000 embedded derivative and net of issuance costs of $ 41,962 — — 1,000 556,038 556,038 — — — — — — Issuance of redeemable Series C preferred stock 52,685 527 — — 527 — — ( 527 ) — — ( 527 ) Preferred dividends attributable to redeemable non-controlling interest — — — 33,014 33,014 — — ( 33,014 ) — — ( 33,014 ) Accretion of embedded derivative to redemption value — — — 295,976 295,976 — — ( 295,976 ) — — ( 295,976 ) Conversion of RSAs into common shares — — — — — 1,223 12 ( 12 ) — — — July 2022 registered direct offering, PIPE offering, modification of warrants and exercise of pre-funded warrants, net of offering costs — — — — — 1,000,000 10,000 3,239,124 — — 3,249,124 Issuance of rounded shares as a result of the reverse stock split — — — — — 24,228 242 ( 242 ) — — — Redemption of Series C preferred stock ( 52,685 ) ( 527 ) — — ( 527 ) — — 527 — — 527 Foreign exchange translation loss — — — — — — — — — ( 505,932 ) ( 505,932 ) Net loss — — — — — — — — ( 18,471,333 ) — ( 18,471,333 ) Balance at December 31, 2022 — $ — 1,000 $ 885,028 $ 885,028 2,078,271 $ 20,782 $ 94,395,662 $ ( 79,207,786 ) $ ( 536,734 ) $ 14,671,924 Balance — $ — 1,000 $ 885,028 $ 885,028 2,078,271 $ 20,782 $ 94,395,662 $ ( 79,207,786 ) $ ( 536,734 ) $ 14,671,924 F- 5 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2023 2022 Cash Flows From Operating Activities: Net loss $ ( 17,291,732 ) $ ( 18,471,333 ) Adjustments to reconcile net loss to cash used in operating activities Change in fair value of warrant liability ( 94,396 ) ( 4,315,236 ) Change in fair value of investment option liability ( 208,752 ) ( 3,472,726 ) Change in fair value of derivative liability ( 727,000 ) 325,000 Stock-based compensation 2,150,160 2,620,671 Inducement expense 1,848,235 — Impairment of intangibles — 7,453,662 Non-cash income tax benefit — ( 1,504,302 ) Amortization of ROU asset 64,048 107,291 Amortization of intangibles 168,754 168,750 Depreciation expense 175,228 159,160 Gain on disposal of property and equipment ( 4,206 ) — Change in operating assets and liabilities: Prepaid expenses and other current assets ( 6,857 ) ( 374,058 ) Accounts payable and accrued liabilities ( 103,848 ) 263,686 Right-of-use operating lease asset and obligation ( 64,045 ) ( 107,288 ) Net cash used in operating activities ( 14,094,411 ) ( 17,146,723 ) Cash Flows From Investing Activities: Purchases of property and equipment ( 5,180 ) ( 584,165 ) Proceeds from disposal of property and equipment 16,847 — Net cash provided by (used in) investing activities 11,667 ( 584,165 ) Cash Flows From Financing Activities: Proceeds from sale of common stock, warrants, and investment options, net of offering costs — 17,222,099 Payment for equity distribution offering costs ( 291,084 ) — Redemption of Series A Preferred Stock ( 1,052,057 ) — Proceeds from the sale of redeemable non-controlling interest, net of offering costs — 958,038 Net cash (used in) provided by financing activities ( 1,343,141 ) 18,180,137 Effect of Foreign Exchange Rate on Changes on Cash ( 10,022 ) ( 81,364 ) Net (decrease) increase in cash ( 15,435,907 ) 367,885 Cash at beginning of year 17,723,884 17,355,999 Cash at end of year $ 2,287,977 $ 17,723,884 Supplemental disclosure of cash and non-cash transactions: Cash paid for interest $ — $ 5,249 Income taxes paid $ 9,507 $ — Warrants issued in conjunction with common stock issuance $ — $ 3,595,420 F- 6 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Issuance of embedded derivative $ — $ 402,000 Stock subscription receivable $ 1,817,640 $ — Offering costs accrued not paid $ 182,724 $ — Warrants issued for offering costs $ 77,991 $ — Issuance of common shares for deferred offering costs $ 255,107 $ — Induced conversion of warrants and preferred investment options $ 683,997 $ — Preferred dividends attributable to redeemable non-controlling interest $ 19,041 $ 33,014 Investment options issued in conjunction with common stock issuance $ — $ 4,323,734 Modification of warrants as part of share capital raise $ — $ 251,357 Accretion of embedded derivative to redemption value $ 147,988 $ 295,976 F- 7 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BUSINESS AND LIQUIDITY AND OTHER UNCERTAINTIES Nature of Operations Enveric Biosciences, Inc. (“Enveric” or the “Company”) is a biotechnology company developing novel neuroplastogenic small-molecule therapeutics for the treatment of depression, anxiety, and addiction disorders. The head office of the Company is located in Naples, Florida. The Company has the following wholly-owned subsidiaries: Jay Pharma Inc. (“Jay Pharma”), 1306432 B.C. Ltd. (“HoldCo”), MagicMed Industries, Inc. (“MagicMed”), Enveric Canada Inc., and Enveric Therapeutics, Pty. Ltd. (“Enveric Therapeutics”). Leveraging its unique discovery and development platform, The Psybrary™, Enveric has created a robust Intellectual Property portfolio of New Chemical Entities for specific mental health indications. Enveric’s lead program, the EVM201 Series, comprises next generation synthetic prodrugs of the active metabolite, psilocin. Enveric is developing the first product from the EVM201 Series – EB-373 – for the treatment of psychiatric disorders. Enveric is also advancing its second program, the EVM301 Series, expected to offer a first-in-class, new approach to the treatment of difficult-to-address mental health disorders, mediated by the promotion of neuroplasticity without also inducing hallucinations in the patient. Following the Company’s amalgamation with MagicMed completed in September 2021 (the “Amalgamation”), the Company has continued to pursue the development of MagicMed’s proprietary Psychedelic Derivatives library, the Psybrary™ which the Company believes will help to identify and develop the right drug candidates needed to address mental health challenges, including cancer-related distress. The Company synthesizes novel versions of classic psychedelics, such as psilocybin, DMT, mescaline and MDMA, using a mixture of chemistry and synthetic biology, resulting in the expansion of the Psybrary™, which includes 15 patent families with over a million potential variations and hundreds of synthesized molecules. Within the Psybrary™ the Company has three different types of molecules, Generation 1 (classic psychedelics), Generation 2 (pro-drugs), and Generation 3 (new chemical entities). The Company is working to add novel psychedelic molecular compounds and derivatives (“Psychedelic Derivatives”) on a regular basis through its work at the Company’s labs in Calgary, Alberta, Canada, where the Company has a team of PhD scientists with expertise in synthetic biology and chemistry. To date the Company has created over 500 molecules that are housed in the Psybrary™. The Company screens newly synthesized molecules in the Psybrary™ through PsyAI™, a proprietary artificial intelligence (“AI”) tool. Leveraging AI systems is expected to reduce the time and cost of pre-clinical, clinical, and commercial development. The Company believes it streamlines pharmaceutical design by predicting ideal binding structures of molecules, manufacturing capabilities, and pharmacological effects to help determine ideal drug candidates, tailored to each indication. Each of these molecules that the Company believes are patentable can then be further screened to see how changes to its makeup alter its effects in order to synthesize additional new molecules. New compounds of sufficient purity are undergoing pharmacological screening, including non-clinical (receptors/cell lines), preclinical (animal), and ultimately clinical (human) evaluations. The Company intends to utilize the Psybrary™ and the AI tool to categorize and characterize the Psybrary™ substituents to focus on bringing more psychedelics-inspired molecules from discovery to the clinical phase. Australian Subsidiary On March 21, 2023, the Company established Enveric Therapeutics, an Australia-based subsidiary, to support the Company’s plans to advance its lead program, the EVM201 Series, comprised of the next generation synthetic prodrugs of the active metabolite, psilocin (“EVM201 Series”), towards the clinic. Enveric Therapeutics will oversee the Company’s preclinical, clinical, and regulatory activities in Australia, including ongoing interactions with the local Human Research Ethics Committees (HREC) and the Therapeutic Goods Administration (TGA), Australia’s regulatory authority. Going Concern, Liquidity and Other Uncertainties The Company has incurred a loss since inception resulting in an accumulated deficit of $ 96,499,518 as of December 31, 2023 and further losses are anticipated in the development of its business. Further, the Company has operating cash outflows of $ 14,094,411 for the year ended December 31, 2023. For the year ended December 31, 2023, the Company had a loss from operations of $ 16,448,440 . Since inception, being a research and development company, the Company has not yet generated revenue and the Company has incurred continuing losses from its operations. The Company’s operations have been funded principally through the issuance of equity. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. F- 8 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate sufficient cash flow in the future to support its operating and capital expenditure commitments. At December 31, 2023, the Company had cash of $ 2,287,977 and working capital of $ 1,238,027 . The Company’s current cash on hand is not sufficient enough to satisfy its operating cash needs for the 12 months from the filing of this Annual Report on Form 10-K. These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for a period of one year after the date the financial statements are issued. Management’s plan to alleviate the conditions that raise substantial doubt include raising additional working capital through public or private equity or debt financings or other sources, which has included the Equity Distribution Agreement with Canaccord for proceeds of up to $ 2.4 million (see Note 7), the Purchase Agreement with Lincoln Park (see Note 7), subject to registration, the Inducement Letters and resulting sales of common stock under the Existing Warrants for cash proceeds of $ 1.8 million received in January 2024 (see Note 7), and the exercise of warrants to purchase 1,954,000 shares of common stock for cash proceeds of approximately $ 2.7 million in February 2024 (see Note 12), and may include additional collaborations with third parties as well as disciplined cash spending. Adequate additional financing may not be available to us on acceptable terms, or at all. Should the Company be unable to raise sufficient additional capital, the Company may be required to undertake cost-cutting measures including delaying or discontinuing certain operating activities. As a result of these factors, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date of the financial statements are issued. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Reduction in Force/Restructuring In May 2023, the Company entered into a cost reduction plan, including a reduction in force (“RIF”) of approximately 35% of its full-time employees to streamline its operations and conserve cash resources. Additionally, contracts with seven consultants that were focused on the Akos cannabinoid spin-out were terminated. The Company recognized severance charges of approximately $ 453,059 through December 31, 2023. The plan included a focus on progressing the Company’s existing non-cannabinoid pipeline while reducing the rate of spend and managing cash flow. In June 2023, the Company completed the reduction in force, with such severance expenses recorded in general and administrative accounts. On June 16, 2023, the Company entered into a separation agreement with Avani Kanubaddi, the Company’s President and Chief Operating Officer (the “Kanubaddi Separation Agreement”). In accordance with the Kanubaddi Separation Agreement, Mr. Kanubaddi’s outstanding restricted stock units (“RSUs”) will retain their vesting conditions. Mr. Kanubaddi’s 2023 salary and benefits of $ 550,974 , inclusive of the 2023 performance bonus in the amount of $ 129,760 were accrued and the salary and benefits, excluding the 2023 performance bonus will be paid out in twelve equal monthly installments beginning in July 2023. As of December 31, 2023, the performance metrics for the 2023 performance bonus were not achieved and the accrued amount of amount of $ 129,760 was reversed. Upon termination, any unvested time-based RSUs became fully vested. The Company accelerated expense recognized related to these shares that vested was $ 231,273 . All of the 11,278 market performance-based RSUs previously granted that were subject to the original terms and conditions of Mr. Kanubaddi’s employment agreement were forfeited during the year ended December 31, 2023. SCHEDULE OF RESTRUCTURING COSTS PAYABLE Accrued Restructuring Costs January 1, 2023 Beginning balance $ — Restructuring costs incurred 1,004,033 Restructuring costs paid ( 572,628 ) Restructuring costs reversed ( 129,760 ) December 31, 2023 ending balance $ 301,645 Inflation Risks The Company considers the current inflationary trend existing in the North American economic environment reasonably likely to have a material unfavorable impact on results of continuing operations. Higher rates of price inflation, as compared to recent prior levels of price inflation, have caused a general increase in the cost of labor and materials. In addition, there is an increased risk of the Company experiencing labor shortages due to a potential inability to attract and retain human resources due to increased labor costs resulting from the current inflationary environment. Nasdaq Notice On November 21, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market stating that as of September 30, 2023, the Company did not meet the minimum of $ 2,500,000 in stockholders’ equity required for continued listing pursuant to Nasdaq Listing Rule 5550(b)(1). On February 6, 2024, the Company received a letter from Nasdaq, granting the Company an extension to regain compliance with the minimum stockholders’ equity requirement by May 20, 2024. If the Company fails to evidence compliance upon filing its periodic report for June 30, 2024 with the SEC and Nasdaq, the Company may be subject to delisting. The Company plans to regain and evidence compliance with the Stockholders’ Equity Requirement by the required deadlines, but it is not assured. F- 9 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principal of Consolidation The accompanying consolidated financial statements have been prepared in accordance and in conformity with U.S. generally accepted accounting principles (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding consolidated financial information. All intercompany transactions have been eliminated in consolidation. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial statements and expenses during the periods reported. By their nature, these estimates are subject to measurement uncertainty and the effects on the financial statements of changes in such estimates in future periods could be significant. Significant areas requiring management’s estimates and assumptions include determining the fair value of transactions involving common stock, the valuation of warrants and preferred investment options, and the valuation of stock-based compensation and accruals associated with third party providers supporting research and development efforts. Actual results could differ from those estimates. Foreign Currency Translation From inception through December 31, 2023, the reporting currency of the Company was the United States dollar while the functional currency of certain of the Company’s subsidiaries was the Canadian dollar and Australian dollar. For the reporting periods ended December 31, 2023 and 2022, the Company engaged in a number of transactions denominated in Canadian dollars and Australian dollars. As a result, the Company is subject to exposure from changes in the exchange rates of the Canadian dollar and Australian dollar against the United States dollar. The Company translates the assets and liabilities of its Canadian subsidiaries and Australian subsidiary into the United States dollar at the exchange rate in effect on the balance sheet date. Revenues and expenses are translated at the average exchange rate in effect during each monthly period. Unrealized translation gains and losses are recorded as foreign currency translation gain (loss), which is included in the consolidated statements of shareholders’ equity as a component of accumulated other comprehensive loss. The Company has not entered into any financial derivative instruments that expose it to material market risk, including any instruments designed to hedge the impact of foreign currency exposures. The Company may, however, hedge such exposure to foreign currency exchange fluctuations in the future. Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other comprehensive loss in the consolidated statements of operations and comprehensive loss as incurred. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company did not have any cash equivalents as of December 31, 2023 and 2022. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which at times, may exceed the federal depository insurance coverage of $ 250,000 in the United States and Australia and $ 100,000 in Canada. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such accounts. As of December 31, 2023, the Company had greater than $ 250,000 at United States financial institutions, less than $ 250,000 at Australian financial institutions, and greater than $ 100,000 at Canadian financial institutions. Comprehensive Loss Comprehensive loss consists of two components, net loss and other comprehensive income (loss). Other comprehensive loss refers to revenue, expenses, gains, and losses that under GAAP are recorded as an element of shareholders’ equity but are excluded from net loss. Other comprehensive loss consists of foreign currency translation adjustments from those subsidiaries not using the U.S. dollar as their functional currency. F- 10 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets Intangible assets consist of the Psybrary™ and Patent Applications, In Process Research and Development (“IPR&D”) and license agreements. Psybrary™ and Patent Applications intangible assets are valued using the relief from royalty method. The cost of license agreements is amortized over the economic life of the license. The Company assesses the carrying value of its intangible assets for impairment each year. IPR&D intangible assets are acquired in conjunction with the acquisition of a business and are assigned a fair value, using the multi-period excess earnings method, related to incomplete research projects which, at the time of acquisition, have not reached technological feasibility. The amounts are capitalized and are accounted for as indefinite-lived intangible assets, subject to impairment testing until completion or abandonment of the projects. Upon successful completion of each project, the Company will make a determination as to the then-useful life of the intangible asset, generally determined by the period in which the substantial majority of the cash flows are expected to be generated, and begin amortization. The Company tests its intangible assets for impairment at least annually and whenever events or circumstances change that indicate impairment may have occurred. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include, among others and without limitation: a significant decline in the Company’s expected future cash flows; a sustained, significant decline in the Company’s stock price and market capitalization; a significant adverse change in legal factors or in the business climate of the Company’s segments; unanticipated competition; and slower growth rates. If the fair value determined is less than the carrying amount, an impairment loss is recognized in operating results. Goodwill The Company tests goodwill for potential impairment at least annually, or more frequently if an event or other circumstance indicates that the Company may not be able to recover the carrying amount of the net assets of the reporting unit. The Company has determined that the reporting unit is the entire company, due to the integration of all of the Company’s activities. In evaluating goodwill for impairment, the Company may assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If the Company bypasses the qualitative assessment, or if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company performs a quantitative impairment test by comparing the fair value of a reporting unit with its carrying amount. Property & Equipment Property and equipment are recorded at cost. Major property additions, replacements, and betterments are capitalized, while maintenance and repairs that do not extend the useful lives of an asset or add new functionality are expensed as incurred. Depreciation and amortization are recorded using the straight-line method over the respective estimated useful lives of the Company’s long-lived assets. The estimated useful lives are typically 3 to 5 years for office furniture and equipment and are depreciated on a straight-line basis. Deferred Offering Costs The Company allocates offering costs to the different components of the capital raise on a pro rata basis. Any offering costs allocated to common stock are charged directly to additional paid-in capital. Any offering costs allocated to warrant liabilities are charged to general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss. The Company complies with the requirements of ASC Topic 340, Other Assets and Deferred Costs (“ASC 340”) and SAB 5A - Expenses of Offering . Offering costs, which consist mainly of legal, accounting and consulting fees directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity. For the year ended December 31, 2023, the Company incurred $ 567,603 in deferred offering costs in connection with the Equity Distribution Agreement (the “Distribution Agreement”), with Canaccord Genuity LLC (“Canaccord”) and the Purchase Agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”). These deferred offering costs will be proportionately offset against the total proceeds from the issuance of common stock available under the agreements and the Company will expense any remaining balance of deferred offering costs if the agreements are terminated. For the year ended December 31, 2023, there were no issuances of common stock under the agreements resulting in the deferral of offering costs. F- 11 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warrant Liability and Investment Options The Company evaluates all of its financial instruments, including issued stock purchase warrants and investment options, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 “Distinguishing Liabilities from Equity” (“ASC 480”) and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The Company accounts for warrants and investment options for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the consolidated balance sheets. The Company accounts for common stock warrants and investment options with put options as liabilities under ASC 480. Such warrants and investment options are subject to remeasurement at each consolidated balance sheet date and any change in fair value is recognized as a component of other expense on the consolidated statements of operations. The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of such common stock warrants and investment options. At that time, the portion of the warrant liability and investment options related to such common stock warrants will be reclassified to additional paid-in capital. Modification and Inducement of Warrants and Investment Options A change in any of the terms or conditions of warrants is accounted for as a modification. For a warrant modification accounted for under ASC 815, the effect of a modification shall be measured as the difference between the fair value of the modified warrant over the fair value of the original warrant immediately before its terms are modified, measured based on the fair value of the shares and other pertinent factors at the modification date. The accounting for incremental fair value of warrants is based on the specific facts and circumstances related to the modification. When a modification is directly attributable to equity offerings, the incremental change in fair value of the warrants are accounted for as equity issuance costs. The Company accounts for the inducement to exercise warrants in accordance with ASC Subtopic 470-20-40 “Debt with Conversion and Other Options” (“ASC 470-20-40”). ASC 470-20-40 requires the recognition through earnings of an inducement charge equal to the fair value of the consideration delivered in excess of the consideration issuable under the original conversion terms. Therefore, the Company recognized a loss on the warrant inducement for the incremental change of the warrants related to the reduced exercise price and the issuance of new warrants as these components induced the holders to exercise the warrants. Derivative Liability The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as assets or liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the consolidated balance sheets as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date. Income Taxes The Company utilizes an asset and liability approach for financial accounting and reporting for income taxes. The provision for income taxes is based upon income or loss after adjustment for those permanent items that are not considered in the determination of taxable income. Deferred income taxes represent the tax effects of differences between the financial reporting and tax basis of the Company’s assets and liabilities at the enacted tax rates in effect for the years in which the differences are expected to reverse. The Company evaluates the recoverability of deferred tax assets and establishes a valuation allowance when it is more likely than not that some portion or all the deferred tax assets will not be realized. Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liabilities. In management’s opinion, adequate provisions for income taxes have been made. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary. Tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely to be realized upon settlement. A liability for “unrecognized tax benefits” is recorded for any tax benefits claimed in the Company’s tax returns that do not meet these recognition and measurement standards. As of December 31, 2023 and 2022, no liability for unrecognized tax benefits was required to be recorded. F- 12 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s policy for recording interest and penalties associated with tax audits is to record such items as a component of operating expenses. There were no amounts accrued for penalties and interest for the years ended December 31, 2023 and 2022. The Company does not expect its uncertain tax positions to change during the next twelve months. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position. The Company has identified its United States, Canadian and Australian federal tax returns, and its state and provincial tax returns in Florida, Massachusetts, New Jersey, Pennsylvania, and Ontario, CA as its “major” tax jurisdictions. The Company is in the process of filing its United States federal and state and Australian federal corporate tax returns for the year ended December 31, 2023. The Company is in the process of filing its Canadian corporate tax returns for the years ended December 31, 2023 and 2022. Net operating losses for these periods will not be available to reduce future taxable income until the returns are filed. Stock-Based Compensation The Company follows ASC 718, Compensation - Stock Compensation, which addresses the accounting for stock-based payment transactions, requiring such transactions to be accounted for using the fair value method. Awards of shares for property or services are recorded at the more readily measurable of the estimated fair value of the stock award and the estimated fair value of the service. The Company uses the Black-Scholes option-pricing model to determine the grant date fair value of certain stock-based awards under ASC 718. The assumptions used in calculating the fair value of stock-based awards represent management’s reasonable estimates and involve inherent uncertainties and the application of management’s judgment. Fair value of restricted stock units or restricted stock awards is determined by the closing price per share of the Company’s common stock on the date of award grant. The estimated fair value is amortized as a charge to earnings on a straight-line basis, for awards or portions of awards that do not require specified milestones or performance criteria as a vesting condition and also depending on the terms and conditions of the award, and the nature of the relationship of the recipient of the award to the Company. The Company records the grant date fair value in line with the period over which it was earned. For employees and consultants, this is typically considered to be the vesting period of the award. The Company accounts for forfeitures as they occur. The estimated fair value of awards that require specified milestones or recipient performance are charged to expense when such milestones or performance criteria are probable to be met. Restricted stock units, restricted stock awards, and stock options are granted at the discretion of the Compensation Committee of the Company’s board of directors (the “Board of Directors”). These awards are restricted as to the transfer of ownership and generally vest over the requisite service periods, typically over a 12 to 48-month period. A significant portion of these awards may include vesting terms that include, without limitation, defined volume weighted average price levels being achieved by the Company’s common stock, specific performance milestones, employment, or engagement by the Company, with no assurances of achievement of any such vesting conditions, if applicable. The value of RSU’s is equal to the product of the number of units awarded, multiplied by the closing price per share of the Company’s common stock on the date of the award. The terms and conditions of each RSU is defined in the RSU agreement and includes vesting terms that consist of any or all of the following: immediate vesting, vesting over a defined period of time, vesting based on achievement of a defined volume weighted average price levels at specified times, vesting based on achievement of specific performance milestones within a specific time frame, change of control, termination of the employee without cause by the Company, resignation of the employee with good cause. The value assigned to each RSU is charged to expense based on the vesting terms, as follows: value of RSU’s that vest immediately are charged to expense on the date awarded, value of RSU’s that vest based upon time, or achievement of stock price levels over a period of time are charged to expense on a straight line basis over the time frame specified in the RSU and the value of RSU’s that vest based upon achievement of specific performance milestones are charged to expense during the period that such milestone is achieved. Vested RSU’s may be converted to shares of common stock of an equivalent number upon either the termination of the recipient’s employment with the Company, or in the event of a change in control. If the recipient is not an employee, such person’s engagement with the Company must either be terminated prior to such conversion of RSU’s to shares of common stock, or in the event of a change in control. Furthermore, as required by Section 409A of the Internal Revenue Code, if the recipient is a “specified employee” (generally, certain officers and highly compensated employees of publicly traded companies), such recipient may only convert vested RSU’s into shares of common stock no earlier than the first day of the seventh month following such recipients termination of employment with the Company, or the event of change in control. F- 13 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The value of RSA’s is equal to the product of the number of restricted shares awarded, multiplied by the closing price per share of the Company’s common stock on the date of the award. The terms and conditions of each RSA is defined in the RSA agreement and includes vesting terms that consist of any or all of the following: immediate vesting, vesting over a defined period of time, or vesting based on achievement of a defined volume weighted average price levels at specified times. Upon vesting, the recipient may receive restricted stock which includes a legend prohibiting sale of the shares during a restriction period that is defined in the RSA agreement. Termination of employment by or engagement with the Company is not required for the recipient to receive restricted shares of common stock. The value assigned to each RSA is charged to expense based on the vesting terms, as follows: value of RSA’s that vest immediately are charged to expense on the date awarded, value of RSA’s that vest based upon time, or achievement of stock price levels over a period of time are charged to expense on a straight-line basis over the time frame specified in the RSU. Net Loss per Share Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options and warrants (using the treasury stock method). The computation of basic net loss per share for the years ended December 31, 2023 and 2022 excludes potentially dilutive securities. The computations of net loss per share for each period presented is the same for both basic and fully diluted. In accordance with ASC 260 “Earnings per Share” (“ASC 260”), penny warrants were included in the calculation of weighted average shares outstanding for the purposes of calculating basic and diluted earnings per share. During the year ended December 31, 2022 the Company issued 767,500 pre-funded common stock warrants, which were exercised on various dates during the year ended December 31, 2022. The pre-funded common stock warrants became exercisable on July 26, 2022 based on the terms and conditions of the agreements. As the pre-funded common stock warrants are exercisable for $ 0.0001 , these shares are considered outstanding common shares and are included in the computation of basic and diluted Earnings Per Share as the exercise of the pre-funded common stock warrants is virtually assured. The Company included these pre-funded common stock warrants in basic and diluted earnings per share when all conditions were met on July 26, 2022. Potentially dilutive securities outlined in the table below have been excluded from the computation of diluted net loss per share the years ended December 31, 2023 and 2022 because the effect of their inclusion would have been anti-dilutive. SCHEDULE OF POTENTIALLY DILUTIVE SECURITIES For the years ended December 31, 2023 2022 Warrants to purchase shares of common stock 2,799,213 655,463 Restricted stock units - vested and unissued 20,848 62,492 Restricted stock units - unvested 140,491 64,053 Restricted stock awards - vested and unissued — 708 Common stock in abeyance 704,000 — Investment options to purchase shares of common stock 70,000 1,070,000 Options to purchase shares of common stock 30,329 48,329 Total potentially dilutive securities 3,764,881 1,901,045 Fair Value of Financial Instruments The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), approximates the carrying amounts in the balance sheets, excluding the derivative, warrants, and preferred investment option liabilities, primarily due to their short-term nature. F- 14 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 - Valuations based on unobservable inputs reflecting our own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. For certain financial instruments, including cash and accounts payable, the carrying amounts approximate their fair values as of December 31, 2023 and 2022 because of their short-term nature. Research and Development Research and development expenses are charged to operations as incurred. Research and development expenses include, among other things, internal and external costs associated with preclinical development, pre-commercialization manufacturing expenses, and clinical trials. The Company accrues for costs incurred as the services are being provided by monitoring the status of the trial or services provided and the invoices received from its external service providers. In the case of clinical trials, a portion of the estimated cost normally relates to the projected cost to treat a patient in the trials, and this cost is recognized based on the number of patients enrolled in the trial. As actual costs become known, the Company adjusts its accruals accordingly. Leases Operating lease assets are included within right-of-use operating lease asset and operating lease liabilities are included in current portion of right-of-use operating lease obligation and non-current portion of right-of-use operating lease obligation on the consolidated balance sheets as of December 31, 2023 and 2022. The Company has elected not to present short-term leases as these leases have a lease term of 12 months or less at lease inception and do not contain purchase options or renewal terms that the Company is reasonably certain to exercise. Lease payments for short-term leases are recognized on a straight-line basis over the term of the lease. All other lease assets and lease liabilities are recognized based on the present value of lease payments over the lease term at commencement date. Because most of the Company’s leases do not provide an implicit rate of return, the Company used an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. The Company assesses whether an arrangement is a lease or contains a lease at inception. For arrangements considered leases or that contain a lease that is accounted for separately, the Company determines the classification and initial measurement of the right-of-use asset and lease liability at the lease commencement date, which is the date that the underlying asset becomes available for use. The Company has elected to account for non-lease components associated with its leases and lease components as a single lease component. The Company recognizes a right-of-use asset, which represents the Company’s right to use the underlying asset for the lease term, and a lease liability, which represents the present value of the Company’s obligation to make payments arising over the lease term. The present value of the lease payments is calculated using either the implicit interest rate in the lease or an incremental borrowing rate . A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset to the Company by the end of the lease term, (ii) the Company holds an option to purchase the leased asset that it is reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases. Finance lease payments are bifurcated into (i) a portion that is recorded as interest expense and (ii) a portion that reduces the finance liability associated with the lease. The Company did not have any finance leases as of December 31, 2023 and 2022. Redeemable Non-controlling Interest In connection with the issuance of Akos Series A Preferred Stock, the Akos Purchase Agreement (as defined below in Note 8) and certificate of designation contain a put right guaranteed by the Company as defined in Note 8. Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer. As a result of this feature, the Company recorded the non-controlling interests as Redeemable Non-Controlling Interests (“RNCI”) and classified them in mezzanine equity within its consolidated balance sheet initially at its acquisition-date estimated redemption value or fair value. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument by accreting the embedded derivative at each reporting period over 12 months. F- 15 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right (as defined below) requiring Akos to force redemption of all of the Akos Series A Preferred Stock. See Note 8. Segment Reporting The Company determines its reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). The Company evaluates a reporting unit by first identifying its operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated. The Company has multiple operations related to psychedelics and cannabinoids. Both of these operations exist under one reporting unit: Enveric. The Company has one operating segment and reporting unit. The Company is organized and operated as one business. Management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. Recent Accounting Pronouncements In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and should be applied on a full or modified retrospective basis. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company early adopted ASU 2020-06 effective January 1, 2023, and has determined that the adoption of this guidance had no impact on its consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . ASU 2023-07 updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for all entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating ASU 2023-07 to determine its impact on the Company’s disclosures, however, as the Company currently has one reportable segment, the Company does not expect ASU 2023-07 to have a material impact. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which amends the disclosure to address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information and includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024, and early adoption and retrospective application are permitted. Early adoption is permitted. The Company is currently assessing potential impacts of ASU 2023-09 and does not expect the adoption of this guidance will have a material impact on its consolidated financial statements and disclosures. F- 16 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3. PREPAID EXPENSES AND OTHER CURRENT ASSETS As of December 31, 2023 and 2022, the prepaid expenses and other current assets of the Company consisted of the following: SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS December 31, 2023 December 31, 2022 Prepaid research and development $ 46,320 $ 268,686 Prepaid value-added taxes 243,429 159,782 Prepaid insurance 149,559 174,406 Prepaid other 62,036 105,179 Deferred offering costs 567,603 — Franchise tax receivable 79,258 — R&D tax incentive receivable 145,349 — Total prepaid expenses and other current assets $ 1,293,554 $ 708,053 NOTE 4. INTANGIBLE ASSETS AND GOODWILL The Company performs an annual impairment test at the reporting unit level as of December 31 of each fiscal year. As of December 31, 2022, the Company’s goodwill and intangible assets were fully impaired, and thus no annual impairment test was necessary as of December 31, 2023. The following table provides the Company’s goodwill, indefinite and definite lives intangible assets as of December 31, 2023 and 2022. As of December 31, 2022, the Company’s goodwill consisted of: SCHEDULE OF GOODWILL Goodwill Accumulated Impairment Losses Currency Translation Total Balance at January 1, 2022 $ 9,834,855 $ ( 8,225,862 ) $ ( 21,359 ) $ 1,587,634 Impairment losses — ( 1,486,060 ) — ( 1,486,060 ) Loss on currency translation — — ( 101,574 ) ( 101,574 ) Balance at December 31, 2022 9,834,855 ( 9,711,922 ) ( 122,933 ) — As of December 31, 2022, the Company’s indefinite lived intangible assets consisted of: SCHEDULE OF INTANGIBLE ASSETS Indefinite lived intangible assets Balance at January 1, 2022 $ 6,375,492 Impairment losses ( 5,967,602 ) Loss on currency translation ( 407,890 ) Balance at December 31, 2022 $ — As of December 31, 2023 and 2022, the definite lived intangible assets consisted of: Definite lived intangible assets Balance at January 1, 2022 $ 548,436 Amortization ( 168,750 ) Balance at December 31, 2022 $ 379,686 Amortization ( 168,754 ) Balance at December 31, 2023 $ 210,932 For identified definite lived intangible assets, amortization expense amounted to $ 168,754 and $ 168,750 during the years ended December 31, 2023 and 2022, respectively. F- 17 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company amortizes definite lived intangible assets on a straight-line basis over their estimated useful lives. Amortization expense of identified intangible assets based on the carrying amount as of December 31, 2023 is as follows: SCHEDULE OF FINITE LIVED INTANGIBLE ASSETS AMORTIZATION EXPENSE Year ending December 31, 2024 $ 168,750 2025 42,182 Finite lived assets amortization expense $ 210,932 NOTE 5. PROPERTY AND EQUIPMENT Property and equipment consists of the following assets which are located in Calgary, Canada and placed in service by Enveric Biosciences Canada, Inc. (“EBCI”), with all amounts translated into U.S. dollars: SCHEDULE OF PROPERTY PLANT AND EQUIPMENT NET OF ACCUMULATED DEPRECIATION December 31, 2023 December 31, 2022 Lab equipment $ 836,709 $ 831,123 Computer equipment and leasehold improvements 28,379 25,137 Less: Accumulated depreciation ( 357,711 ) ( 178,775 ) Property and equipment, net of accumulated depreciation $ 507,377 $ 677,485 Depreciation expense was $ 175,228 and $ 159,160 for the years ended December 31, 2023 and 2022, respectively. NOTE 6. ACCRUED LIABILITIES As of December 31, 2023 and December 31, 2022, the accrued liabilities of the Company consisted of the following: SCHEDULE OF ACCRUED LIABILITIES December 31, 2023 December 31, 2022 Product development $ 139,981 $ 195,104 Accrued salaries, wages, and bonuses 8,889 1,175,963 Professional fees 584,810 83,255 Accrued restructuring costs 301,645 — Accrued franchise taxes 22,318 — Patent costs 18,000 251,333 Total accrued expenses $ 1,075,643 $ 1,705,655 NOTE 7. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS Authorized Capital The holders of the Company’s common stock are entitled to one vote per share . Holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. Upon the liquidation, dissolution, or winding up of the Company, holders of common stock are entitled to share ratably in all assets of the Company that are legally available for distribution. As of December 31, 2023, 100,000,000 shares of common stock and 20,000,000 shares of Preferred Stock were authorized under the Company’s articles of incorporation. Equity Distribution Agreement On September 1, 2023, the Company entered into the Distribution Agreement, with Canaccord, pursuant to which the Company may offer and sell from time to time, through Canaccord as sales agent and/or principal, shares of common stock of the Company, par value $ 0.01 per share having an aggregate offering price of up to $ 10.0 million. Due to the offering limitations applicable to the Company and in accordance with the terms of the Distribution Agreement, the Company may offer common stock having an aggregate gross sales price of up to $ 2,392,514 pursuant to the prospectus supplement dated September 1, 2023 (the “Prospectus Supplement”). Subject to the terms and conditions of the Distribution Agreement, Canaccord may sell the common stock by any method permitted by law deemed to be an “at-the-market offering”. The Company will pay Canaccord a commission equal to 3.0 % of the gross sales price of the common stock sold through Canaccord under the Distribution Agreement and has also agreed to reimburse Canaccord for certain expenses. The Company may also sell common stock to Canaccord as principal for Canaccord’s own account at a price agreed upon at the time of sale. Any sale of common stock to Canaccord as principal would be pursuant to the terms of a separate terms agreement between the Company and Canaccord. F- 18 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Inducement Letters (as defined below within this Note 7) prohibits the Company from entering into any variable rate transaction as defined in the Inducement Letters, including the issuance of (1) any variable priced debt or equity securities or (2) transactions whereby the Company may issue securities at a future determined price, such as through an at-the-market offering or an equity line of credit. The variable rate transaction restriction expires after six-month from the closing date of December 28, 2023 for the Inducement Letters for an issuance through an at-the-market offering, and one-year for the remaining variable rate transactions. Subsequent to December 31, 2023, the limitation on the at-the-market offering was waived. See Note 12. Lincoln Park Equity Line On November 3, 2023, the Company entered into a Purchase Agreement and a registration rights agreement (the “Registration Rights Agreement”), with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $ 10.0 million of the Company’s common stock, par value $ 0.01 per share subject to certain limitations and satisfaction of the conditions set forth in the Purchase Agreement. Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $ 10.0 million of the Company’s common stock (the “Purchase Shares”). However, such sales of common stock by the Company, if any, will be subject to important limitations set forth in the Purchase Agreement, including limitations on number of shares that may be sold. Sales may occur from time to time, at the Company’s sole discretion, over the 24-month period commencing on the date that the conditions to Lincoln Park’s purchase obligation set forth in the Purchase Agreement are satisfied, including that a registration statement on Form S-1 covering the resale of the shares of our common stock that have been and may be issued to Lincoln Park under the Purchase Agreement, which the Company has filed with the SEC pursuant to the Registration Rights Agreement, is declared effective by the SEC and a final prospectus relating thereto is filed with the SEC. Because the purchase price per share to be paid by Lincoln Park for the shares of common stock that we may elect to sell to Lincoln Park under the Purchase Agreement, if any, will fluctuate based on the market prices of our Common Stock at the time we elect to sell shares to Lincoln Park pursuant to the Purchase Agreement, if any, it is not possible for us to predict the number of shares of Common Stock that we will sell to Lincoln Park under the Purchase Agreement, the purchase price per share that Lincoln Park will pay for shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Lincoln Park under the Purchase Agreement. During the year ended December 31, 2023, the Company has issued no shares of common stock through the Equity Line or the Distribution Agreement. The Company had capitalized deferred offering costs of $ 567,603 related to establishing the Distribution Agreement with Canaccord and the Purchase Agreement with Lincoln Park and no reductions to additional paid in capital. Of this amount, $ 255,107 represents the fair value of 139,403 shares of common stock issued to Lincoln Park as consideration for its commitment under the Purchase Agreement. Common Stock Activity During the year ended December 31, 2023 a total of 103,641 shares of common stock were issued pursuant to the conversion of restricted stock units. During the year ended December 31, 2022, a total of 1,223 and 899 shares of common stock were issued pursuant to the conversion of restricted stock awards and restricted stock units, respectively. On February 15, 2022, the Company completed a public offering of 400,000 shares of common stock and warrants to purchase up to 400,000 shares of common stock for gross proceeds of approximately $ 10.0 million, before deducting underwriting discounts and commissions and other offering expenses. A.G.P./Alliance Global Partners acted as sole book-running manager for the offering. In addition, Enveric granted the underwriter a 45-day option to purchase up to an additional 60,000 shares of common stock and/or warrants to purchase up to an additional 60,000 shares of common stock at the public offering price, which the underwriter has partially exercised for warrants to purchase up to 60,000 shares of common stock. At closing, Enveric received net proceeds from the offering of approximately $ 9.1 million, after deducting underwriting discounts and commissions and estimated offering expenses with $ 5.8 million allocated to equity, $ 3.6 million to warrant liability and the remaining $ 0.3 million recorded as an expense. F- 19 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On July 22, 2022, the Company entered into a securities purchase agreement (the “Registered Direct Securities Purchase Agreement”) with an institutional investor for the purchase and sale of 116,500 shares of the Company’s common stock, pre-funded warrants to purchase up to 258,500 shares of common stock (the “RD Pre-Funded Warrants”), and unregistered preferred investment options (the “RD Preferred Investment Options”) to purchase up to 375,000 shares of common stock (the “RD Offering”). The gross proceeds from the RD Offering were approximately $ 3,000,000 . Subject to certain ownership limitations, the RD Pre-Funded Warrants became immediately exercisable at an exercise price equal to $ 0.0001 per share of common stock. On August 3, 2022, all of the issued RD Pre-Funded Warrants were exercised. Concurrently with the RD Offering, the Company entered into a securities purchase agreement (the “PIPE Securities Purchase Agreement”) with institutional investors for the purchase and sale of 116,000 shares of common stock, pre-funded warrants to purchase up to 509,000 shares of common stock (the “PIPE Pre-Funded Warrants”), and preferred investment options (the “PIPE Preferred Investment Options”) to purchase up to 625,000 shares of the common stock in a private placement (the “PIPE Offering”). The gross proceeds from the PIPE Offering were approximately $ 5,000,000 . Subject to certain ownership limitations, the PIPE Pre-Funded Warrants became immediately exercisable at an exercise price equal to $ 0.0001 per share of common stock. All of the issued PIPE Pre-Funded Warrants were exercised on various dates prior to August 18, 2022. The RD Offering and PIPE Offering closed on July 26, 2022, with aggregate gross proceeds of approximately $ 8 million. The aggregate net proceeds from the offerings, after deducting the placement agent fees and other estimated offering expenses, were approximately $ 7.1 million, with $ 3.2 million allocated to equity, $ 4.3 million to investment option liability, and the remaining $ 0.4 million recorded as an expense. Stock Options Amendment to 2020 Long-Term Incentive Plan On May 3, 2022, our board of directors (“Board”) adopted the First Amendment (the “Plan Amendment”) to the Enveric Biosciences, Inc. 2020 Long-Term Incentive Plan (the “Incentive Plan”) to (i) increase the aggregate number of shares available for the grant of awards by 146,083 shares to a total of 200,000 shares, and (ii) add an “evergreen” provision whereby the number of shares authorized for issuance pursuant to awards under the Incentive Plan will be automatically increased on the first trading date immediately following the date the Company issues any share of common stock (defined below) to any person or entity, to the extent necessary so that the number of shares of the Company’s common stock authorized for issuance under the Incentive Plan will equal the greater of (x) 200,000 shares, and (y) 15% of the total number of shares of the Company’s common stock outstanding as of such issuance date (the “Evergreen Provision”). The Plan Amendment was approved by the Company’s shareholders at a special meeting of the Company’s shareholders held on July 14, 2022. On November 2, 2023, the shareholders approved the amendments to the 2020 Long-Term Incentive Plan, which was approved by the Board on August 8, 2023 (the “Amended Incentive Plan”). The Amended Incentive Plan (i) increased the number of authorized shares reserved for issuance under the Amended Incentive Plan to a maximum of 350,000 , subject to adjustment, and (ii) removed the Evergreen Provision implemented in the Plan Amendment. As of December 31, 2023, the total number of shares available for grant under the Incentive Plan was 107,453 . A summary of the stock option activity under the Company’s incentive plan for the years ended December 31, 2023 and 2022 is presented below: SCHEDULE OF STOCK OPTION Number of Shares Weighted Average Exercise Price Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (years) Aggregate Intrinsic Value Outstanding at January 1, 2022 23,829 $ 79.00 $ 103.50 5.3 $ 34,333 Granted 25,500 $ 3.07 $ 2.58 $ — Forfeited ( 1,000 ) $ 175.00 $ 140.50 $ — Outstanding at December 31, 2022 48,329 $ 37.05 $ 44.82 4.1 $ — Granted — $ — $ — — Forfeited ( 18,000 ) $ 3.07 $ 2.58 — Outstanding at December 31, 2023 30,329 $ 57.17 $ 77.22 3.4 $ — Exercisable at December 31, 2023 25,677 $ 64.45 $ 88.72 2.9 $ — F- 20 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Options granted during the years ended December 31, 2022 were valued using the Black Scholes model with the following assumptions: SCHEDULE OF STOCK OPTION ASSUMPTION December 31, 2022 Term (years) 5.5 Stock price $ 3.07 Exercise price $ 3.07 Dividend yield — Expected volatility 112.0 % Risk free interest rate 3.9 % The above assumptions are determined by the Company as follows: ● Stock price – Based on closing price of the Company’s common stock on the date of grant. ● Weighted average risk-free interest rate — Based on the daily yield curve rates for U.S. Treasury obligations with maturities, which correspond to the expected term of the Company’s stock options. ● Dividend yield — The Company has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future. ● Expected volatility — Based on the historical volatility of comparable companies in a similar industry. ● Expected term — The Company has had no stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin (“SAB”) No. 107, Share-Based Payment, which averages an award’s weighted-average vesting period and expected term for “plain vanilla” share options. The Company’s stock based compensation expense, recorded within general and administrative expense, related to stock options for the years ended December 31, 2023 and 2022 was $ 156,075 and $ 180,042 , respectively. As of December 31, 2023, the Company had $ 84,774 in unamortized stock option expense, which will be recognized over a weighted average period of 1.00 years. Restricted Stock Awards For the years ended December 31, 2023 and 2022, the Company recorded $ 0 and $ 24,363 , respectively, in stock-based compensation expense within general and administrative expense, related to restricted stock awards. There were no RSA grants during the years ended December 31, 2023 and 2022. As of December 31, 2022, there were no unvested RSA shares. As of December 31, 2023, there were no unamortized stock-based compensation costs related to restricted share awards. During the year ended December 31, 2023 the Company settled the 708 vested and unissued shares (as of December 31, 2022) for cash of $ 14,250 . There are no restricted stock awards as of December 31, 2023. F- 21 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Issuance of Restricted Stock Units The Company’s activity in restricted stock units was as follows for the year ended December 31, 2023: SCHEDULE OF RESTRICTED STOCK UNITS AND AWARDS ACTIVITY Number of shares Weighted average fair value Non-vested at January 1, 2022 62,013 $ 126.00 Granted 37,445 $ 33.50 Forfeited ( 26,772 ) $ 79.64 Vested ( 8,633 ) $ 130.55 Non-vested at December 31, 2022 64,053 $ 92.57 Granted 182,500 $ 2.73 Forfeited ( 43,426 ) $ 25.72 Vested ( 62,636 ) $ 19.80 Non-vested at December 31, 2023 140,491 $ 28.97 For the years ended December 31, 2023 and 2022, the Company recorded $ 1,994,085 and $ 2,416,266 , respectively, in stock-based compensation expense related to restricted stock units, which is a component of both general and administrative and research and development expenses in the consolidated statement of operations and comprehensive loss. As of December 31, 2023, the Company had unamortized stock-based compensation costs related to restricted stock units of $ 2,021,021 which will be recognized over a weighted average period of 1.9 years and unamortized stock-based costs related to restricted stock units which will be recognized upon achievement of specified milestones. As of December 31, 2023, 20,848 restricted stock units are vested without shares of common stock being issued, with all of these shares due as of December 31, 2023. The following table summarizes the Company’s recognition of stock-based compensation for restricted stock units for the following periods: SCHEDULE OF STOCK-BASED COMPENSATION FOR RESTRICTED STOCK UNITS 2023 2022 Year ended December 31, 2023 2022 Stock-based compensation expense for RSUs: General and administrative $ 1,085,791 $ 1,389,359 Research and development 908,294 1,026,907 Total $ 1,994,085 $ 2,416,266 Stock-based compensation expense for RSUs $ 1,994,085 $ 2,416,266 Warrants and Preferred Investment Options The following table summarizes information about shares issuable under warrants outstanding at December 31, 2023 and 2022: SCHEDULE OF WARRANTS OUTSTANDING Warrant shares outstanding Weighted average exercise price Weighted average remaining life Intrinsic value Outstanding at January 1, 2022 195,463 $ 131.00 3.4 $ 801,024 Issued 1,227,500 $ 10.31 $ — Exercised ( 767,500 ) $ — $ — Exchanged for common stock — $ — $ — Outstanding at December 31, 2022 655,463 $ 58.36 3.6 $ 5,514 Issued 2,311,320 $ 1.37 $ — Exercised ( 122,000 ) $ 1.37 $ — Forfeited ( 45,570 ) $ 111.50 $ — Outstanding at December 31, 2023 2,799,213 $ 11.79 4.6 $ — Exercisable at December 31, 2023 2,799,213 $ 11.79 4.6 $ — F- 22 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS On February 11, 2022, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with A.G.P./Alliance Global Partners (the “Underwriter”). Pursuant to the Underwriting Agreement, the Company agreed to sell, in a firm commitment offering, 400,000 shares of the Company’s common stock and accompanying warrants to purchase up to an aggregate of 400,000 shares of its common stock (“February 2022 Warrants”), as well as up to 60,000 additional shares of common stock and/or warrants to purchase an aggregate of up to 60,000 shares of its common stock that may be purchased by the Underwriter pursuant to a 45-day option granted to the Underwriter by the Company (the “Offering”). Each share of common stock was sold together with a common warrant to purchase one share of common stock, at an exercise price of $ 27.50 per share. Such common warrants were immediately exercisable and will expire five years from the date of issuance. There is not expected to be any trading market for the common warrants issued in the Offering. The combined public offering price of each share of common stock and accompanying common warrant sold in the Offering was $ 25.00 . On February 14, 2022, the Underwriter exercised its option to purchase an additional 60,000 warrants. In connection with the Registered Direct (“RD”) Offering and the Private Investment in Public Entity (“PIPE”) Offering entered into on July 22, 2022, the Company entered into Warrant Amendment (the “Warrant Amendments”) with the investors in both offerings to amend certain existing warrants to purchase up to an aggregate of 122,000 shares of common stock that were previously issued to the investors, with an exercise price of $ 27.50 per share (subsequent to the 1-for-50 reverse stock split that occurred on July 14, 2022) and expiration date of February 15, 2027 . Pursuant to the Warrant Amendments, the previously issued warrants were amended, effective upon the closing of the offerings, so that the amended warrants have a reduced exercise price of $ 7.78 per share and expire five and one-half years following the closing of the offerings. In connection with this transaction, the Company determined the fair value of the February 2022 Warrants immediately prior to the Warrant Amendment and the fair value of the amended warrants immediately after the Warrant Amendment. For the year ended December 31, 2022, the incremental change in fair value was deemed to be $ 251,357 , which was included as equity issuance costs related to the RD and PIPE financing transactions. The warrants assumed pursuant to the acquisition of MagicMed contain certain down round features, which were not triggered by the February 2022 and July 2022 public offerings, that would require adjustment to the exercise price upon certain events when the offering price is less than the stated exercise price. The following table summarizes information about investment options outstanding at December 31, 2023 and 2022: SCHEDULE OF WARRANTS AND INVESTMENT OPTIONS Investment options outstanding Weighted average exercise price Weighted average remaining life Intrinsic value Outstanding at January 1, 2022 — $ — — $ — Issued 1,070,000 $ 7.93 — — Outstanding at December 31, 2022 1,070,000 $ 7.93 5.1 $ — Exercised ( 1,000,000 ) $ 1.37 — — Outstanding at December 31, 2023 70,000 $ 10.00 4.1 $ — Exercisable at December 31, 2023 70,000 $ 10.00 4.1 $ — In connection with the Registered Direct Securities Purchase Agreement the Company issued unregistered preferred investment options to purchase up to 375,000 shares of common stock. Subject to certain ownership limitations, the RD Preferred Investment Options became immediately exercisable at an exercise price equal to $ 7.78 per share of common stock. The RD Preferred Investment Options are exercisable for five and one-half years from the date of issuance. In connection with the PIPE Securities Purchase Agreement the Company issued unregistered preferred investment options to purchase up to 625,000 shares of the common stock. Subject to certain ownership limitations, PIPE Preferred Investment Options became immediately exercisable at an exercise price equal to $ 7.78 per share of common stock. The PIPE Preferred Investment Options are exercisable for five and one-half years from the date of issuance. On July 26, 2022, in connection with the RD Offering and PIPE Offering, the Company issued preferred investment options (the “Placement Agent Preferred Investment Options”) to an entity to purchase up to 70,000 shares of the common stock for acting as a placement agent. The Placement Agent Preferred Investment Options have substantially the same terms as the RD Preferred Investment Options and the PIPE Preferred Investments Options, except the Placement Agent Preferred Investment Options have an exercise price of $ 10.00 per share. The Placement Agent Preferred Investment Options are exercisable for five years from the date of the commencement of the RD Offering and PIPE Offering. On December 28, 2023, the Company entered into warrant exercise inducement offer letters (the “Inducement Letters”) with certain holders (the “Holders”) of the February 2022 Post-Modification Warrants and RD and PIPE preferred investment options to purchase shares of the Company’s common stock (the “Existing Warrants and Investment Options”) pursuant to which the Holders agreed to exercise for cash their Existing Warrants and Investment Options to purchase 1,122,000 shares of the Company’s common stock, in the aggregate, at a reduced exercised price of $ 1.37 per share (from an original exercise price of $ 7.78 per share), in exchange for the Company’s agreement to issue new warrants (the “Inducement Warrants”) to purchase up to 2,244,000 shares of the Company’s common stock (the “Inducement Warrant Shares”), and the Holders to make a cash payment of $ 0.125 per Inducement Warrant share for total proceeds of $ 280,500 . In January 2024, the Company received aggregate gross proceeds of $ 1,817,640 from the exercise of the Existing Warrants and Investment Options by the Holders and the sale of the Inducement Warrants. Because the Existing Warrants and Investment Options by the Holders and the sale of the Inducement Warrants that exercised on December 28, 2023 and unsettled until January 2024, the proceeds are included in the consolidated balance sheet as a subscription receivable as of December 31, 2023. As of December 31, 2023, 418,000 shares of the Existing Warrants and Investment Options exercised were considered issued as the Company had the enforceable right to the obtain the cash proceeds, which were in-transit, and the Holders were no longer able to rescind the exercise election. Due to the beneficial ownership limitation provisions, 704,000 shares of the Existing Warrants and Investment Options exercised were initially unissued and held in abeyance for the benefit of the Holder until notice is received from the Holder that the shares may be issued in compliance with such limitation. The Company engaged Roth Capital Partners, LLC (“Roth”) to act as its financial advisor in connection with the transactions summarized above and will pay Roth approximately $144,000 for its services, in addition to reimbursement for certain expenses. Roth was also issued warrants to purchase up to 67,320 shares of common stock. The Roth Warrants have the same terms as the Inducement Warrants. The grant date fair value of these Roth Warrants was estimated to be $77,991 on December 28, 2023 and were charged to additional paid in capital as issuance costs. The Company also incurred legal fees of $17,254 related to the transactions above that were charged to additional paid in capital as issuance costs. F- 23 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company also agreed to file a registration statement on Form S-3 covering the resale of the Inducement Warrant Shares issued or issuable upon the exercise of the Inducement Warrants (the “Resale Registration Statement”) by January 8, 2024 (filed January 11, 2024). In the Inducement Letters, the Company agreed not to issue any shares of common stock or common stock equivalents or to file any other registration statement with the SEC (in each case, subject to certain exceptions) for a period ending on February 26, 2024. The Company also agreed not to effect or agree to effect any variable rate transaction (as defined in the Inducement Letters) until December 28, 2024. See the Equity Distribution Agreement section of this Note. In connection with this transaction, the Company determined the fair value of the Existing Warrants and Investment Options immediately prior to the Inducement Letters and the fair value of the amended warrants and investment options immediately after the Inducement Letters. The pre-modification measurement of fair value of the Existing Warrants and Investment Options were determined utilizing a Black-Scholes model considering all relevant assumptions current at the date of modification (i.e. for the Existing Warrants share price of $ 1.56 , exercise price of $ 7.78 , term of 3.6 years, volatility of 94 %, risk-free rate of 3.96 %, and expected dividend rate of 0 %, resulting in a fair value per share of $ .54 and for the Investment Options share price of $ 1.56 , exercise price of $ 7.78 , term of 4.1 years, volatility of 95 %, risk-free rate of 3.90 %, and expected dividend rate of 0 %, resulting in a fair value per share of $ .62 ). The total fair value of the 122,000 Existing Warrants and 1,000,000 Investment Options was $ 65,349 and $ 618,648 , respectively. The post-modification fair value was determined using the intrinsic value of $ 0.19 due to the inducement and totaled $ 23,180 and $ 190,000 for the Existing Warrants and Investment Options, respectively. The change in fair value from the date of the modification prior to modification and the fair value on the date of the modification after the modification, but prior to exercise was $ 470,817 , which was reflected as an inducement gain, within other expenses on the Company’s consolidated statement of operations and comprehensive loss. The grant date fair value of these Inducement Warrants was estimated to be $ 2,599,552 on December 28, 2023 and the proceeds of $ 280,500 , which were received on January 2, 2024, for the issuance of the Inducement Warrants is reflected as inducement expense, within other expenses on the Company’s consolidated statement of operations and comprehensive loss. The Company established the initial fair value of its equity classified Inducement Warrants at the date of issuance on December 28, 2023. The Company used a Black Scholes valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the valuation of the warrants are below: SCHEDULE OF BLACK SCHOLES VALUATION MODEL FOR VALUATION OF WARRANTS Roth and Inducement Warrants December 28, 2023 Term (years) 5.0 Stock price $ 1.56 Exercise price $ 1.37 Dividend yield — % Expected volatility 92.0 % Risk free interest rate 3.80 % Number of warrants 2,311,320 Value (per share) $ 1.16 Series C Preferred Shares On May 3, 2022, the Board of Directors (the “Board”) declared a dividend of one one-thousandth of a share of the Company’s Series C Preferred Stock (“Series C Preferred Stock”) for each outstanding share of the Company’s common stock held of record as of 5:00 p.m. Eastern Time on May 13, 2022 (the “Record Date”). This dividend was based on the number of outstanding shares of common stock prior to the Reverse Stock Split. The outstanding shares of Series C Preferred Stock were entitled to vote together with the outstanding shares of the Company’s common stock, as a single class, exclusively with respect to a proposal giving the Board the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of such proposal by the Company’s stockholders (the “Reverse Stock Split Proposal”), as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the Reverse Stock Split Proposal (the “Adjournment Proposal”). F- 24 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company held a special meeting of stockholders on July 14, 2022 (the “Special Meeting”) for the purpose of voting on, among other proposals, a Reverse Stock Split Proposal and an Adjournment Proposal. All shares of Series C Preferred Stock that were not present in person or by proxy at the Special Meeting were automatically redeemed by the Company immediately prior to the opening of the polls at Special Meeting (the “Initial Redemption”). All shares that were not redeemed pursuant to the Initial Redemption were redeemed automatically upon the approval by the Company’s stockholders of the Reverse Stock Split Proposal at the Special Meeting (the “Subsequent Redemption” and, together with the Initial Redemption, the “Redemption”). Each share of Series C Preferred Stock was entitled to receive $0.10 in cash for each 10 whole shares of Series C Preferred Stock immediately prior to the Redemption. As of June 30, 2022, there were 52,684.548 shares of Series C Preferred Stock issued and outstanding. As of December 31, 2022, both the Initial Redemption and the Subsequent Redemption had occurred. As a result, no shares of Series C Preferred Stock remain outstanding. As of December 31, 2023 and 2022, there are 100,000 shares of Series C Preferred Stock authorized for future issuances. NOTE 8. REDEEMABLE NON-CONTROLLING INTEREST Spin-Off and Related Private Placement In connection with the Spin-Off, on May 5, 2022, Akos and the Company entered into into a Securities Purchase Agreement (the “Akos Purchase Agreement”) with an accredited investor (the “Akos Investor”), pursuant to which Akos agreed to sell up to an aggregate of 5,000 shares of Akos Series A Preferred Stock, at price of $ 1,000 per share, and warrants (the “Akos Warrants”) to purchase shares of Akos’ common stock, par value $ 0.01 per share (the “Akos Common Stock”), for an aggregate purchase price of up to $ 5,000,000 (the “Akos Private Placement”). The Akos Purchase Agreement was guaranteed by the Company. Pursuant to the Akos Purchase Agreement, Akos issued 1,000 shares of the Akos Series A Preferred Stock to the Akos Investor in exchange for $ 1,000,000 on May 5, 2022. The additional $ 4,000,000 was to be received on or immediately prior to the Spin-Off. The issuance of the Akos Series A Preferred Stock results in RNCI (see Note 2). Palladium Capital Advisors, LLC (“Palladium”) acted as placement agent for the Akos Private Placement. Pursuant to the Akos Purchase Agreement, Akos had agreed to pay Palladium a fee equal to 9% of the aggregate gross proceeds raised from the sale of the shares of the Akos Series A Preferred Stock and a non-accountable expense allowance of 1% of the aggregate gross proceeds raised the sale of the Akos Series A Preferred Stock in the Akos Private Placement. The fee due in connection with the Akos Private Placement to be paid to Palladium in the form of convertible preferred stock and warrants was on similar terms to the securities issued in the Akos Private Placement. Palladium was also entitled to warrants to purchase Akos Common Stock in an amount up to 8 % of the number of shares of Akos Common Stock underlying the shares issuable upon conversion of the Akos Series A Preferred Stock. As of December 31, 2023, no accruals are required to be recorded for the fees or warrants since the Akos Series A Preferred Stock has been redeemed. Terms of Akos Series A Preferred Stock Under the Certificate of the Designations, Preferences, and Rights of Series A Convertible Preferred Stock of Akos (the “Akos Series A Preferred Certificate of Designations”), on or immediately prior to the completion of the spin-off of Akos into an independent, separately traded public company listed on the Nasdaq Stock Market, the outstanding Akos Series A Preferred Stock automatically converted into a number of shares of Akos Common Stock equal to 25 % of the then issued and outstanding Akos Common Stock, subject to the Beneficial Ownership Limitation (as defined in the Akos Purchase Agreement). Cumulative dividends on each share of Akos Series A Preferred Stock accrue at the rate of 5 % annually. The Akos Series A Preferred Certificate of Designations provided that upon the earlier of (i) the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred; or (ii) such time that Akos and the Company have abandoned the Spin-Off or the Company is no longer pursuing the Spin-Off in good faith, the holders of the Akos Series A Preferred Stock shall have the right (the “Put Right”), but not the obligation, to cause Akos to purchase all or a portion of the Akos Series A Preferred Stock for a purchase price equal to $ 1,000 per share, subject to certain adjustments as set forth in the Akos Series A Preferred Certificate of Designations (the “Stated Value”), plus all the accrued but unpaid dividends per share. In addition, after the one-year anniversary of May 5, 2022, and only in the event that the Spin-Off has not occurred and Akos is not in material default of any of the transaction documents, Akos may, at its option, at any time and from time to time, redeem the outstanding shares of Akos Series A Preferred Stock, in whole or in part, for a purchase price equal to the aggregate Stated Value of the shares of Akos Series A Preferred Stock being redeemed and the accrued and unpaid dividends on such shares. Pursuant to the Akos Purchase Agreement, the Company has guaranteed the payment of the purchase price for the shares purchased under the Put Right. F- 25 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Akos Series A Preferred Certificate of Designations contains limitations that prevent the holder thereof from acquiring shares of Akos Common Stock upon conversion of the Akos Series A Preferred Stock that would result in the number of shares of Akos Common Stock beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of Akos Common Stock outstanding immediately after giving effect to the conversion (the “Beneficial Ownership Limitation”), except that upon notice from the holder to Akos, the holder may increase or decrease the limit of the amount of ownership of outstanding shares of Akos Common Stock after converting the holder’s shares of Akos Series A Preferred Stock, provided that any change in the Beneficial Ownership Limitation shall not be effective until 61 days following notice to Akos. Redemption of Akos Series A Preferred Stock In May 2023, pursuant to the Akos Series A Preferred Certificate of Designations, the holders of the Akos Series A Preferred Stock exercised the Put Right requiring Akos to force redemption of all of the Akos Series A Preferred Stock for $ 1,000  per share, plus accrued but unpaid dividends of approximately $ 52,000  for a total of approximately $ 1,052,000 . The Company had 20 days following the receipt of the Put Exercise Notice to make the payment and made payment on May 19, 2023. Upon redemption in May 2023, the Company revalued the derivative liability and the Company recognized a change in fair value of the derivative liability on the Company’s consolidated statement of operations during the second quarter of 2023 of $ 714,000 . The Company, Akos, and the Akos Investor have terminated the Akos Purchase Agreement in connection with the planned Spin-Off and certain registration rights agreement in connection with the Akos Private Placement. Accounting for Akos Series A Preferred Stock Since the shares of Akos Series A Preferred Stock were redeemable at the option of the holder and the redemption is not solely in the control of the Company, the shares of Akos Series A Preferred Stock were accounted for as a redeemable non-controlling interest and classified within mezzanine equity in the Company’s consolidated balance sheets. The redeemable non-controlling interest was initially measured at fair value. Dividends on the shares of Akos Series A Preferred Stock were recognized as preferred dividends attributable to redeemable non-controlling interest in the Company’s consolidated statement of operations and comprehensive loss. The table below presents the reconciliation of changes in redeemable non-controlling interest: SCHEDULE OF RECONCILIATION CHANGE IN REDEEMABLE NONCONTROLLING INTEREST Balance at December 31, 2022 $ 885,028 Preferred dividends attributable to redeemable non-controlling interest 19,041 Accretion of embedded derivative and transaction costs associated with Akos Series A Preferred Stock to redemption value 147,988 Redemption of Akos Series A Preferred Stock ( 1,052,057 ) Balance at December 31, 2023 $ — In May 2023, the Akos Series A Preferred Stock was redeemed for a total of 1,052,057 , and the balance of the redeemable non-controlling interest is $ 0 as of December 31, 2023. F- 26 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 9. FAIR VALUE The following table provides the financial liabilities measured on a recurring basis and reported at fair value on the balance sheet as of December 31, 2023 and 2022, and indicates the fair value of the valuation inputs the Company utilized to determine such fair value of warrant liabilities, derivative liability, and investment options: SCHEDULE OF FAIR VALUE HIERARCHY OF VALUATION INPUTS ON RECURRING BASIS Level December 31, 2023 December 31, 2022 Warrant liabilities - January 2021 Warrants 3 $ 4 $ 81 Warrant liabilities - February 2021 Warrants 3 4 79 Warrant liabilities - February 2022 Warrants 3 25,462 185,055 Fair value of warrant liability $ 25,470 $ 185,215 Level December 31, 2023 December 31, 2022 Derivative liability - May 2022 3 $ — $ 727,000 Fair value of derivative liability $ — $ 727,000 Level December 31, 2023 December 31, 2022 Wainwright investment options 3 $ 23,608 $ 44,904 RD investment options 3 — 302,289 PIPE investment options 3 — 503,815 Fair value of investment option liability $ 23,608 $ 851,008 The warrant liabilities, derivative liability, and investment options are all classified as Level 3, for which there is no current market for these securities such as the determination of fair value requires significant judgment or estimation. Changes in fair value measurement categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded within other income (expense) on the consolidated statements of operations and comprehensive loss. Initial measurement The Company established the initial fair value of its warrant liabilities at the respective dates of issuance. The Company used a Black Scholes valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations of the warrant liabilities are below: SCHEDULE OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES AND INVESTMENT OPTIONS February 2022 Warrants February 2022 Post-Modification Warrants (See Note 7) February 15, 2022 July 26, 2022 Term (years) 5.0 5.5 Stock price $ 15.75 $ 6.33 Exercise price $ 27.50 $ 7.78 Dividend yield — % — % Expected volatility 74.1 % 80.0 % Risk free interest rate 1.9 % 2.9 % Number of warrants 460,000 122,000 Value (per share) $ 8.00 $ 4.07 F- 27 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company established the initial fair value of its derivative liability at the respective date of issuance. The Company used a Weighted Expected Return valuation model in order to determine their value. The key inputs into the Weighted Expected Return valuation model for the initial valuations of the warrant liabilities are below: May 2022 Derivative Liability May 5, 2022 Principal $ 1,000,000 Dividend rate 5.0 % Market rate 4.4 % The Company established the initial fair value of its investment options at the respective dates of issuance. The Company used a Black Scholes valuation model in order to determine their value. The key inputs into the Black Scholes valuation model for the initial valuations of the investment options are below: Wainwright Options RD Options PIPE Options July 26, 2022 July 26, 2022 July 26, 2022 Term (years) 5.0 5.5 5.5 Stock price $ 6.33 $ 6.33 $ 6.33 Exercise price $ 10.00 $ 7.78 $ 7.78 Dividend yield — % — % — % Expected volatility 80.0 % 80.0 % 80.0 % Risk free interest rate 2.9 % 2.9 % 2.9 % Number of investment options 70,000 375,000 625,000 Value (per share) $ 3.60 $ 4.07 $ 4.07 Subsequent measurement The following table presents the changes in fair value of the warrant liabilities, derivative liability, and investment options that are classified as Level 3: SCHEDULE OF FAIR VALUE OF WARRANT LIABILITIES AND DERIVATIVE LIABILITY AND INVESTMENT OPTIONS Total Warrant Liabilities Fair value as of December 31, 2021 $ 653,674 Issuance of February 2022 warrants 3,595,420 Change in fair value due to modification of February 2022 warrants as part of July 2022 raise 251,357 Change in fair value ( 4,315,236 ) Fair value as of December 31, 2022 $ 185,215 Change in fair value ( 94,396 ) Exercise of warrants ( 65,349 ) Fair value as of December 31, 2023 $ 25,470 Total Derivative Liability Fair value as of December 31, 2021 $ — Issuance of May 2022 convertible preferred stock 402,000 Change in fair value 325,000 Fair value as of December 31, 2022 $ 727,000 Change in fair value arising from redemption of Akos Series A Preferred Stock - See Note 8 ( 727,000 ) Fair value of derivative liability as of December 31, 2023 $ — F- 28 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Total Investment Options Fair value as of December 31, 2021 $ — Issuance of July 2022 investment options 4,323,734 Change in fair value ( 3,472,726 ) Fair value as of December 31, 2022 $ 851,008 Change in fair value ( 208,752 ) Exercise of investment options ( 618,648 ) Fair value of investment option liability as of December 31, 2023 $ 23,608 The key inputs into the Black Scholes valuation model for the Level 3 valuations of the warrant liabilities as of December 31, 2023 are below: SCHEDULE OF BLACK SCHOLES VALUATION MODELS OF WARRANT LIABILITIES AND INVESTMENT OPTIONS January 2021 Warrants February 2021 Warrants February 2022 Warrants Unmodified Term (years) 2.0 2.1 3.1 Stock price $ 1.30 $ 1.30 $ 1.30 Exercise price $ 247.50 $ 245.00 $ 27.50 Dividend yield — % — % — % Expected volatility 89.0 % 88.0 % 87.0 % Risk free interest rate 4.20 % 4.20 % 4.00 % Number of warrants 36,429 34,281 338,000 Value (per share) $ 0.00 $ 0.00 $ 0.08 The key inputs into the Black Scholes valuation model for the Level 3 valuations of the investment options as of December 31, 2023 are below: H.C. Wainwright & Co., LLC Options Term (years) 3.6 Stock price $ 1.30 Exercise price $ 10.00 Dividend yield — % Expected volatility 94.0 % Risk free interest rate 4.00 % Number of investment options 70,000 Value (per share) $ 0.34 At the date of the redemption of the of Akos Series A Preferred Stock in May 2023, the derivative liability fair value was $ 0 due to the probability of a spin-off occurring was zero. See Note 8. F- 29 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 10. COMMITMENTS AND CONTINGENCIES The Company is periodically involved in legal proceedings, legal actions and claims arising in the normal course of business. Management believes that the outcome of such legal proceedings, legal actions and claims will not have a significant adverse effect on the Company’s financial position, results of operations or cash flows. Australian Subsidiary Research and Development On March 23, 2023, the Company issued a press release announcing the selection of Australian CRO, Avance Clinical, in preparation for Phase 1 Study of EB-373, the Company’s lead candidate targeting the treatment of anxiety disorders. Under the agreement, Avance Clinical will manage the Phase 1 clinical trial of EB-373 in coordination with the Company’s newly established Australian subsidiary, Enveric Therapeutics Pty, Ltd. The Phase 1 clinical trial is designed as a multi-cohort, dose-ascending study to measure the safety and tolerability of EB-373. EB-373, a next-generation proprietary psilocin prodrug, has been recognized as a New Chemical Entity (NCE) by Australia’s Therapeutic Goods Administration (TGA) and is currently in preclinical development targeting the treatment of anxiety disorder. The total cost of the Avance Clinical contract is approximately 3,000,000 AUD, which translates to approximately $ 2,000,000 USD as of December 31, 2023. As of December 31, 2023, the Company has paid approximately $ 1,036,940 of the Avance Clinical contract costs and has accrued $ 523,284 recorded as accrued liabilities and $ 239,320 as accounts payable on the accompanying consolidated balance sheet. For the year ended December 31, 2023, the Company has expensed $ 1,751,444 in research and development expenses within the accompanying consolidated statement of operations. Development and Clinical Supply Agreement On February 22, 2021, the Company entered into a Development and Clinical Supply Agreement (the “PureForm Agreement”) with PureForm Global, Inc. (“PureForm”), pursuant to which PureForm will be the exclusive provider of synthetic cannabidiol (“API”) for the Company’s development plans for cancer treatment and supportive care. Under the terms of the PureForm Agreement, PureForm has granted the Company the exclusive right to purchase API and related product for cancer treatment and supportive care during the term of the Agreement (contingent upon an initial minimum order of 1 kilogram during the first thirty (30) days from the effective date) and has agreed to manufacture, package and test the API and related product in accordance with specifications established by the parties. All inventions that are developed jointly by the parties in the course of performing activities under the PureForm Agreement will be owned jointly by the parties in accordance with applicable law; however, if the Company funds additional research and development efforts by PureForm, the parties may enter into a further agreement whereby PureForm would assign any resulting inventions or technical information to the Company. The initial term of the PureForm Agreement is three (3) years commencing on the effective date of the PureForm Agreement, subject to extension by mutual agreement of the parties. The Company has met the minimum purchase requirement of 1 kilogram during the first thirty days of the PureForm Agreement’s effectiveness. The Company did not pursue an extension of the PureForm Agreement beyond the initial term and the agreement terminated in 2024. Purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan On December 26, 2017, Jay Pharma entered into a purchase agreement with Prof. Zvi Vogel and Dr. Ilana Nathan (the “Vogel-Nathan Purchase Agreement”), pursuant to which Jay Pharma was assigned ownership rights to certain patents, which were filed and unissued as of the date of the Vogel-Nathan Purchase Agreement. The Vogel-Nathan Purchase Agreement includes a commitment to pay a one-time milestone totaling $ 200,000 upon the issuance of a utility patent in the United States or by the European Patent Office, as defined in the agreement. The Company has accrued such amount as of December 31, 2021, as a result of the milestone criteria being achieved. Payment was made during January 2022. In addition, a milestone payment totaling $ 300,000 is due upon initiation of a Phase II(b) study. Research activities related to the relevant patents are still in pre-clinical stage, and accordingly, this milestone has not been achieved. The Vogel-Nathan Purchase Agreement contains a commitment for payment of royalties equaling 2 % of the first $ 20 million in net sales derived from the commercialization of products utilizing the relevant patent. As these products are still in the preclinical phase of development, no royalties have been earned. Other Consulting and Vendor Agreements The Company has entered into a number of agreements and work orders for future consulting, clinical trial support, and testing services, with terms ranging between 1 and 18 months. These agreements, in aggregate, commit the Company to approximately $ 1.3 million in future cash payments. F- 30 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Right-of-use lease On August 1, 2021, MagicMed entered into a lease agreement (the “LSIH Lease”) with the University of Calgary for the use and occupation of lab and office space at the University of Calgary’s Life Science Innovation Hub building located in Calgary, Alberta, Canada (the “LSIH Facility”). The lease expired in July 2023, and was extended on a month-to-month basis through December 31, 2023. Accordingly, no operating lease liability or right-of-use asset is recorded as of December 31, 2023. The Company terminated this lease effective in March 2024. Rent expense is recorded on the straight-line basis. Rent expense under the LSIH Lease for the years ended December 31, 2023 and 2022 was $ 114,241 and $ 120,667 , respectively. Rent expense is recorded in research and development costs on the consolidated statements of operations and comprehensive loss. The weighted-average remaining lease term and the weighted-average discount rate of the lease was as follows: SCHEDULE OF WEIGHTED AVERAGE REMAINING LEASE TERM December 31, 2022 Remaining lease term (years) Operating leases 0.6 Discount rate Operating leases 12.0 % NOTE 11. INCOME TAXES The Company’s U.S. and foreign loss before income taxes are set forth below: SCHEDULE OF EARNING (LOSS) BEFORE INCOME TAX 2023 2022 December 31, 2023 2022 United States $ ( 10,205,116 ) $ ( 7,251,228 ) Foreign ( 7,057,703 ) ( 12,706,165 ) Total $ ( 17,262,819 ) $ ( 19,957,393 ) For the years ended December 31, 2023 and 2022, the Company recorded income tax expense of $ 28,913 and an income tax benefit of $ 1,486,060 , respectively. The income tax benefit (expense) is as follows: SCHEDULE OF INCOME TAX EXPENSE BENEFITS December 31, Current: 2023 2022 Federal $ — $ — State ( 28,913 ) — Foreign — $ — Total current income tax (expense) benefit $ ( 28,913 ) $ — Deferred: Federal $ — $ — State — — Foreign — 1,486,060 Total deferred income tax (expense) benefit $ — $ 1,486,060 Total income tax (expense) benefit $ ( 28,913 ) $ 1,486,060 F- 31 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company’s deferred tax assets and deferred tax liabilities consist of the following: SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES 2023 2022 December 31, 2023 2022 Deferred tax assets: Net operating loss carryforwards $ 10,889,863 $ 8,927,330 Stock-based compensation 1,185,399 1,348,928 Research and development capitalized expenses 611,245 614,041 Intangible amortization 80,518 54,141 Other 70,730 33,453 Less valuation allowances ( 12,837,755 ) ( 10,977,893 ) Net deferred tax assets $ — $ — The Company had the following potentially utilizable net operating loss tax carryforwards: SCHEDULE OF OPERATING LOSS CARRY FORWARDS 2023 2022 December 31, 2023 2022 Federal $ 24,268,692 $ 18,349,753 State $ 11,220,065 $ 16,892,754 Foreign $ 17,672,420 $ 16,377,435 Net operating loss tax carryforwards $ 17,672,420 $ 16,377,435 The Tax Cuts and Jobs Act of 2017 (the “Act”) limits the net operating loss deduction to 80% of taxable income for losses arising in tax years beginning after December 31, 2017. As of December 31, 2023, the Company had federal net operating loss carryforwards and state net operating loss carryforwards of $ 24,268,692 and $ 11,220,065 , respectively, both of which can be carried forward indefinitely and Canadian net operating loss carryforwards of $ 17,672,420 , which will begin to expire in 2040. The Company’s effective tax rate varied from the statutory rate as follows: SCHEDULE OF EFFECTIVE STATUTORY INCOME TAX RATE 2023 2022 December 31, 2023 2022 Federal income tax at the statutory rate ( 21.0 )% ( 21.0 )% State income tax rate (net of federal) ( 1.2 )% ( 2.6 )% Foreign tax rate differential ( 3.0 )% ( 3.1 )% Non-deductible expenses 1.4 % ( 4.0 )% Deferred true-up 13.2 % — % Change in valuation allowance 10.8 % 23.3 % Effective income tax rate 0.2 % ( 7.4 )% In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The valuation allowance increased by $ 1,859,862 and $ 4,429,869 during the years ended December 31, 2023 and 2022, respectively. The Company files U.S. federal and state returns. The Company’s foreign subsidiary also files a local tax return in their local jurisdiction. From a U.S. federal, state and Canadian perspective the years that remain open to examination are consistent with each jurisdiction’s statute of limitations. As of December 31, 2023, the Company has not filed tax returns for the fiscal year 2023 and Canadian corporate tax returns for fiscal year 2022. Section 382 The utilization of the Company’s net operating losses may be subject to a substantial limitation in the event of any significant future changes in its ownership structure under Section 382 of the Internal Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their utilization. Section 174 F- 32 ENVERIC BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Beginning in 2022, the Tax Cuts and Jobs Act of 2017 (“TCJA”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to amortize US expenses over five years and foreign expense over fifteen years pursuant to IRC Section 174. During the years ended December 31, 2023 and 2022, the Company has estimated and capitalized gross $ 463,696 and $ 2,684,319 , respectively, of research and development expenditures that will be amortized primarily over five years. This did not have a material impact on the Company’s tax liability for the years ended December 31, 2023 and 2022. The Company will continue to evaluate the impact of these tax law changes on the current and future periods. Inflation Reduction Act On August 16, 2022, President Joe Biden signed the Inflation Reduction Act of 2022 (the “Act”) into law. The Act includes a new 15% corporate minimum tax and a 1% excise tax on the value of corporate stock repurchases, net of new share issuances, after December 31, 2022. These provisions did not have a material impact on the Company’s consolidated financial position as of December 31, 2023. NOTE 12. SUBSEQUENT EVENTS Through February 29, 2024, the Company issued all 704,000 shares of common stock of the 704,000 shares of Existing Warrants and Investment Options exercised that were held in abeyance due to the beneficial ownership limitation provisions. On February 29, 2024, one investor exercised the Inducement Warrants to purchase 1,954,000 shares of common stock for cash proceeds of approximately $ 2.7 million. On March 8, 2024, the Company entered into a series of common stock purchase agreements for the issuance in a registered direct offering of 228,690 shares of the Company’s common stock, par value $ 0.01 per share to the Holders of the Inducement Warrants. The issuance was made in exchange for the permanent and irrevocable waiver of the variable rate transaction limitation solely with respect to the entry into and/or issuance of shares of common stock in an at the market offering contained in the Inducement Letters. Subsequent to December 31, 2023, the Company sold an aggregate of 1,668,000 shares of common stock for aggregate gross proceeds of $ 2,392,502 and net proceeds of $ 2,320,707 under the Distribution Agreement with Canaccord.” F- 33